MNI BRIEF: BOJ Takata Backs Gradual, Vigilant Hikes
MNI (TOKYO) - Bank of Japan board member Hajime Takata said on Thursday the BOJ needed to consider raising the policy interest rate to avoid creating excessively high expectations of continued monetary easing.
“Inflation is approaching the 2% price stability target, with positive corporate behaviour already being observed, I believe it will be important for the Bank to consider continuing to implement gear shifts gradually, even after the additional rate hike decided in January 2025, in order to avoid creating excessively high expectations of continued monetary easing, which would lead to a materialisation of the upside risks to prices and the risk of overheating of financial activity,” Takata told business leaders in Sendai City.
“However, as uncertainties still remain surrounding the U.S. economy and it is difficult to identify the neutral interest rate, I think that the Bank is expected to take a vigilant approach, such as by examining at each monetary policy meeting how policy interest-rate hikes may affect developments in economic activity, prices, and financial conditions. It is especially difficult to estimate Japan's neutral interest rate, because Japan's policy interest rates remained at low levels from the 1990s and did not change in the way they did in the U.S. and Europe."
He added, given these limitations in identifying the neutral interest rate, it would be problematic in terms of policy flexibility for a central bank to announce a certain level for the neutral interest rate, "as the market could interpret this as forward guidance.”
Takata also warned of the upside risks to prices, pointing to wage growth strength and trade policies of the new U.S. administration.