Bank of Japan signals future rate hikes amid optimism over inflation targets
Date
9/12/2024 4:41:57 AM
(MENAFN) A prominent bank of Japan (BOJ) policymaker, Naoki Tamura, has called for interest rates to rise to at least 1 percent by late next year, signaling the central bank's commitment to steadily tighten its monetary policy. This is a significant statement, as it marks the first time a BOJ official has publicly suggested a specific target for raising short-term borrowing costs. Tamura expressed optimism that the likelihood of Japan's Economy achieving the BOJ's 2 percent inflation target sustainably is improving. He emphasized that to reach this inflation target, the central bank should aim to raise interest rates to levels considered neutral for the economy by around late 2025. According to Tamura, the neutral interest rate for Japan is estimated to be at least 1 percent. He stated that to ensure the BOJ's objective of controlling inflation sustainably, it is necessary to raise short-term interest rates to at least 1 percent by the second half of the fiscal year ending in March 2026. Tamura's comments were delivered in a speech to business leaders in Okayama, in western Japan.
His remarks align with recent statements by other BOJ board members, who have also advocated for continued increases in borrowing costs despite recent volatility in financial markets. While the BOJ is expected to maintain its current interest rates at its next policy meeting on September 20, a survey of economists last month revealed that over half anticipate further tightening of monetary policy before the end of the year. This comes after a historic shift in March when the BOJ abandoned its negative interest rate policy, followed by a hike in short-term rates to 0.25 percent in July. This policy change reflects the bank's assessment that the Japanese economy is making steady progress toward achieving its long-term 2 percent inflation target. BOJ Governor Kazuo Ueda has also indicated a readiness to raise interest rates further if inflation continues to meet or exceed the 2 percent target in the coming years, particularly if accompanied by robust wage growth, as currently anticipated.
While advocating for additional rate hikes, Tamura also underscored the need for caution. He highlighted the importance of carefully evaluating the impact of higher borrowing costs on Japan's economy, given its prolonged period of near-zero interest rates. His remarks suggest a balanced approach, where the BOJ remains committed to its inflation targets while also being mindful of the potential economic consequences of further rate increases. This careful assessment reflects the BOJ's strategy of gradually normalizing monetary policy while considering Japan's unique economic landscape and the long-term effects of its previous ultra-loose monetary stance.
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