Bank of Japan board member Junko Koeda said on Thursday that persistent inflation pressures linked to the Middle East conflict could justify further interest rate hikes, adding to a growing chorus of hawkish voices inside the central bank. Speaking in Fukuoka, Koeda said there was “some possibility that underlying inflation may exceed 2% looking ahead” as elevated oil prices continue feeding through the economy. She added that recent increases in long-term inflation expectations also “warranted attention.”
Koeda stressed that her view was based on the risk that energy-driven inflation proves more persistent than initially expected. “I believe it’s reasonable to raise the policy interest rate at an appropriate pace to address high inflation, while also considering the trade-offs for the economy,” she said.
She also warned that “developments over the past month or two may have increased the likelihood of a risk scenario in which high crude oil prices persist.” Her comments suggest she may align more closely with the hawkish faction on the board pushing for earlier normalization, though they do not necessarily represent the consensus position of the BoJ as a whole.
At the same time, Koeda argued Japan’s economy remains resilient enough to withstand tighter policy, citing a positive output gap and strong global IT demand. She also highlighted growing concern over the side effects of maintaining deeply negative real interest rates for too long, warning policymakers must pay greater attention to distortions caused by excessively accommodative settings.
