Thu Sep 12 01:42:28 UTC 2024: ## BOJ Policymaker Calls for 1% Interest Rate Target, Signaling Further Tightening

**OKAYAMA, Japan (Reuters)** – Naoki Tamura, a hawkish member of the Bank of Japan (BOJ) policy board, has urged the central bank to raise interest rates to at least 1% as soon as the second half of the next fiscal year. This statement marks the first time a BOJ policymaker has publicly specified a target level for short-term borrowing costs.

Tamura’s comments, delivered at a speech to business leaders in Okayama, suggest a stronger commitment to ongoing monetary tightening. He cited the improving likelihood of Japan achieving the BOJ’s 2% inflation target sustainably, indicating that conditions for additional rate hikes are emerging.

Tamura also noted that Japan’s neutral interest rate, estimated to be at least around 1%, is crucial for sustainably reaching the price goal. He stressed the need to raise short-term policy rates to this level, implying a gradual increase in borrowing costs over the next three years.

The BOJ’s current forecast period extends to March 2027, and Tamura hinted that the central bank should aim for a 1% rate by the latter half of this timeframe, potentially as early as October 2025. However, he emphasized that the path and pace of rate adjustments will be carefully monitored and adjusted based on economic conditions.

While the BOJ is expected to maintain current rates at its September 20 meeting, more than half of economists surveyed by Reuters anticipate further tightening by year-end. This stance is in line with recent comments from other BOJ board members who have also advocated for continued rate hikes despite market volatility.

The BOJ’s historic decision in March to abandon negative interest rates and raise short-term rates to 0.25% in July was driven by the belief that the economy was making progress towards achieving its inflation target. Governor Kazuo Ueda has indicated a willingness to further raise rates if inflation remains around 2% and is accompanied by solid wage growth.

Tamura expressed concern about escalating upside inflation risk due to intensifying labor shortages and businesses passing on rising costs through price increases. He believes that raising interest rates gradually and strategically is essential to address this challenge.

With core consumer inflation hitting 2.7% in July and exceeding the 2% target for 28 consecutive months, the BOJ faces growing pressure to continue its tightening path. Tamura’s forceful call for a 1% interest rate target underscores the bank’s determination to achieve its price stability objective.

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