Bank of Japan board member Naoki Tamura laid out his clearest roadmap yet for further policy normalization on Thursday, saying the central bank’s baseline should be to raise interest rates by 25 basis points every few months until the policy rate reaches around 2%, which he views as a neutral level. Tamura said, “what I envisage as a baseline path is raising the policy interest rate by 0.25 percentage points at intervals of a few months toward the neutral interest rate level of 2 percent,” highlighting the BoJ’s increasingly hawkish stance following last week’s rate hike to 1.0%.
Tamura argued that inflation risks have become more pronounced, with underlying inflation already reaching the Bank’s 2% target and inflation expectations continuing to rise. He noted that companies are passing on higher import costs “more quickly, significantly and broadly” than after Russia’s invasion of Ukraine in 2022, reflecting a structural shift in corporate pricing behavior. While the conflict in the Middle East has contributed to higher energy costs, he stressed that upside inflation risks warrant attention regardless of how the geopolitical situation evolves.
Tamura also left the door open to a faster pace of tightening if inflation pressures prove more persistent. “If the chance of upside price risks materializing heightens, it’s necessary to accelerate the pace of rate hikes without hesitation by increasing the frequency or size of rate hikes,” he said. Although Tamura is widely regarded as one of the BoJ’s most hawkish policymakers, his remarks reinforce the message from last week’s policy meeting and Wednesday’s Summary of Opinions that the debate within the Board has shifted firmly toward how quickly, rather than whether, rates should continue moving higher.
