BoJ board member Naoki Tamura indicated in a speech today that the likelihood of achieving 2% inflation target sustainably is improving. As a result, the central bank needs to gradually raise interest rates to neutral levels.
Tamura estimated Japan’s neutral interest rate, or the rate that neither stimulates nor slows down economic activity, to be at least around 1%.
He added, “As such, it’s necessary to push up our short-term policy rate at least to around 1% by the latter half of the fiscal year ending March 2026 to sustainably achieve the BoJ’s price goal.”
In light of growing labor shortages and rising wage pressures, Tamura warned that inflation risks were increasing. Companies are responding to tight labor market conditions by raising wages and passing on higher costs through price hikes.
Tamura underscored the need to “raise interest rates at an appropriate timing, and in several stages,” in order to keep inflation under control.
This marked the first time a BoJ policymaker had publicly specified a target level for raising short-term interest rates.
