TOKYO :Japan has a “prime opportunity” to raise interest rates as its economy is weathering the hit from U.S. tariffs, central bank board member Hajime Takata said on Monday, reiterating his case for resuming a hike in borrowing costs.
Takata, who voted against keeping rates steady in September, said Japan has already roughly achieved the BOJ’s 2 per cent inflation target and could see price growth overshoot expectations.
He also said the BOJ’s “tankan” business survey in October and findings from its branch managers suggest improvements in job and income conditions are underpinning consumption.
“I believe that now is a prime opportunity to raise interest rates,” Takata said in a speech, explaining his call for a rate hike at the September meeting.
The yen and Japanese government bond (JGB) yields rose after the remarks, which kept alive market expectations for a near-term interest rate hike.
Takata was among two members of the board who voted against keeping interest rates steady at 0.5 per cent in September, instead proposing unsuccessfully a hike to 0.75 per cent.
His remarks heighten the chance Takata will propose a rate hike again at the next meeting on October 29-30. The other hawkish member, Naoki Tamura, also stressed the need to lift rates closer to levels deemed neutral to the economy.
Their comments highlight a contrast between hawks in the nine-member board and Governor Kazuo Ueda, who stressed the need for caution on uncertainty over the U.S. economic outlook and the degree of damage U.S. tariffs could exert on Japanese firms.
Most analysts expect the BOJ to raise interest rates to 0.75 per cent by early next year, though there is no consensus on the exact timing of a move.
Ueda offered few clues on the timing of the next rate hike last week in Washington, saying only that he would keep scrutinising various data leading up to the October meeting.
While the International Monetary Fund painted a cautiously optimistic view on the global outlook, a recent slew of soft jobs data has heightened market expectations the U.S. Federal Reserve will cut rates for the second straight meeting in October.
Takata said the U.S. economy was unlikely to suffer a major downturn due to stable financial conditions, and sound balance sheets of households, firms and financial institutions.
The Fed’s interest rate cut in September did not cause an unwelcome yen rise, while U.S. tariffs have not hurt Japanese companies’ appetite to spend on equipment and wages, he added.
“My view is that the Bank is still in the process of gradually shifting gears” away from ultra-loose monetary policy towards interest rate hikes as it enters a “true dawn” of durably economic recovery.
The BOJ exited a decade-long, massive stimulus last year and raised interest rates to 0.5 per cent in January on the view Japan was on the cusp of sustainably hitting its 2 per cent inflation target.
With consumer inflation exceeding the BOJ’s 2 per cent target for well over three years, the board has been split between those who favour hiking soon and others keen to spend more time scrutising the impact of tariffs on the economy.
Political developments may complicate the BOJ’s rate hike timing as Sanae Takaichi, who is known as an advocate of loose monetary policy, is set to become Japan’s first prime minister in a parliament vote on Tuesday.
