The Bank of Japan may have to raise interest rates rapidly if inflation accelerates, board member Kazuyuki Masu has warned, as the central bank faces mounting pressure from higher producer prices, a weaker yen and rising energy costs.
Speaking to business leaders in Fukui on Thursday, Mr Masu said financial conditions remained accommodative and that the BOJ should continue moving its policy rate towards a level considered neutral for the economy.
“If inflation accelerates here, there is a risk we might inevitably need to rapidly raise interest rates,” he said.
Mr Masu said a recent increase in producer prices deserved close attention because companies appeared more willing than in the past to pass higher costs on to consumers. The weakness of the yen and increased expenses linked to the conflict in the Middle East could add to those pressures.
Higher fuel and chemical prices could raise transport costs, he said, while persistent food price increases risked having a lasting effect on overall inflation.
Underlying inflation in Japan has not yet reached the BOJ’s 2 per cent target, but is now “quite close” to it, Mr Masu said. He added that the central bank needed to raise rates further while borrowing conditions remained supportive, giving policymakers greater flexibility to respond to changes in the economy.
The remarks come ahead of the BOJ’s monetary policy meeting on September 17 and 18. A Reuters poll found that 97 per cent of economists expected the central bank to raise its policy rate to 1.25 per cent on September 18, with a further increase to 1.75 per cent expected in the second quarter of 2027.
Markets have been watching for signs that Japan’s central bank could tighten policy more quickly as price pressures broaden and the yen remains weak. Mr Masu’s comments reinforce the view that the pace of future increases will depend heavily on whether inflation becomes more firmly embedded in the economy.
