By Leika Kihara

OKAYAMA, Japan (Reuters) -The Bank of Japan must raise interest rates to at least 1% by late next year, hawkish policymaker Naoki Tamura said on Thursday, reinforcing the bank’s resolve to persist with steady monetary tightening.

It was the first time a BOJ policymaker publicly specified a level the central bank should eventually target in pushing up short-term borrowing costs.

Tamura said the likelihood of Japan’s economy sustainably achieving the BOJ’s 2% inflation was improving, which meant the central bank must raise interest rates to levels deemed neutral to the economy by around late 2025.

He said Japan’s neutral rate of interest, or the level that neither cools nor stimulates the economy, is estimated to be at least around 1%.

“As such, it’s necessary to push up our short-term policy rate at least to around 1%,” by around the latter half of the fiscal year ending March 2026 to sustainably achieve the BOJ’s price goal, Tamura said in a speech to business leaders in Okayama, western Japan.

In a historic step, the BOJ ditched negative interest rates in March and raised short-term rates to 0.25% in July on the view the economy was making progress toward durably achieving its 2% inflation target.

Governor Kazuo Ueda has signalled the bank’s readiness to raise rates further if inflation stays around 2% in coming years accompanied by solid wage gains, as it currently projects.

While stressing the need to hike rates further, Tamura said the BOJ must carefully assess how rising borrowing costs affect the economy, given Japan’s prolonged experience of near-zero interest rates.

© Reuters. FILE PHOTO: Japanese national flag is hoisted atop the headquarters of Bank of Japan in Tokyo, Japan September 20, 2023.  REUTERS/Issei Kato/File Photo

But he said market bets on the pace of BOJ rate hikes could be too slow to avoid inflation from overshooting.

“We must raise interest rates at an appropriate timing, and in several stages,” the former commercial banker said, adding that he personally sees upside inflationary risks rising.

By admin

Related Post

Leave a Reply

Your email address will not be published. Required fields are marked *