Bank of Japan prepares accelerated hikes should inflation risks grow
Naoki Tamura says the central bank will accelerate its baseline path of regular quarter-point hikes if upside inflation risks from the Middle East intensify.
- A Bank of Japan board member stated the central bank must accelerate the pace of interest rate hikes if upside risks to inflation materialize.
- An accelerated pace would involve increasing the frequency or the size of rate hikes without hesitation.
- This potential for faster hikes contrasts with the current baseline plan to raise rates by 0.25 percentage points every few months.
- The board member, Naoki Tamura, anticipates raising interest rates to a neutral level of approximately 2 percent.
Speaking to local business leaders in Kobe, Hyogo Prefecture, western Japan, on Thursday (25 June), Bank of Japan Policy Board member Naoki Tamura stated that he anticipates raising interest rates to a neutral level of approximately 2 per cent.
He considers this neutral rate, which neither stimulates nor cools the economy, to be "most likely around 2 pct."
To reach this target, Tamura outlined his current projections, stating, "What I envisage as a baseline path is raising the policy interest rate by 0.25 percentage points at intervals of a few months."
However, he delivered a stark message regarding potential economic threats, particularly concerning the Middle East situation.
"I expect upside risks when it comes to prices," he noted, regardless of whatever course events may take.
Reinforcing the central bank's determination to control inflation, Tamura stated clearly: "If the materialisation of upside risks to prices becomes more likely, I consider it necessary to accelerate the pace of rate hikes without hesitation by increasing the frequency or size of rate hikes."
This firm stance follows the BOJ's recent policy meeting on 15-16 June, where decision-makers decided by a 7-1 vote to lift the policy rate to around 1 per cent from around 0.75 per cent.
Tamura was among the seven board members who voted for this latest hike, which marks the most recent in a series of increases since the central bank ended its negative interest rate policy in March 2024.
Concluding his remarks, Tamura reaffirmed the central institution's core mandate.
He added that it remains the BOJ's mission "to serve as the 'guardian of price stability,' while maintaining thorough communication with the government."
