Hawkish BOJ policymaker calls for rate hike once every few months

Naoki Tamura, a hawkish board member of the Bank of Japan, has called for a series of interest rate increases, proposing a pace of one hike every few months. His objective is to gradually move the policy rate towards a level considered neutral for the Japanese economy.

Tamura estimates that Japan's neutral interest rate is approximately 2%, a figure significantly higher than the BOJ's current policy rate of 1%. He anticipates that inflationary pressures will intensify, irrespective of global events such as conflicts in the Middle East.

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Considering the recent increase in upside risks to prices, what I envisage as a baseline path is raising the policy interest rate by 0.25 percentage points at intervals of a few months toward the neutral interest rate level of 2 percent

He explained that the pass-through of recent import price increases could be faster, more substantial, and widespread than observed following Russia's invasion of Ukraine in 2022. This is attributed to evolving corporate pricing behaviors.

"Considering the recent increase in upside risks to prices, what I envisage as a baseline path is raising the policy interest rate by 0.25 percentage points at intervals of a few months toward the neutral interest rate level of 2 percent," Tamura stated. He added that if the likelihood of upside price risks materializes, the pace of rate hikes should be accelerated without hesitation by increasing their frequency or size.

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If the chance of upside price risks materialising heightens, it's necessary to accelerate the pace of rate hikes without hesitation by increasing the frequency or size of rate hikes