In support of market perceptions that it will not be in a rush to boost borrowing costs, a dovish policymaker stated on Thursday that Japan’s central bank has the ability to raise interest rates further but must do so gradually and gently to prevent harming the economy. Asahi Noguchi, a board member of the Bank of Japan, made the remarks one day after Shigeru Ishiba, Japan’s new prime minister, made shockingly direct comments that caused the yen to weaken: “The economy is not ready for further rate hikes.”
According to Noguchi, the recent recovery of the yen from the “one-sided,” steep declines saw in July has reduced the inflationary pressure caused by import prices, giving the BOJ more time to examine economic risks before deciding whether to raise rates next. Noguchi stated at a press conference that the bank must make the choice “with extreme caution” and that “we will adjust the degree of monetary support if economic and price developments move in line with our forecasts, albeit at a slow pace.”
The timing and pace of the policy changes will rely on data, he added. “As it’s difficult to come up with a concrete estimate on Japan’s neutral rate, we need to pause after hiking once to scrutinise the impact before raising rates again,” he said. Although Noguchi chose not to respond to Ishiba’s comments, he did say that the BOJ should consider that different political opinions represented public opinion even if it makes policy on its own.
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