BoJ will find further rate hike difficult this year, says former deputy governor

Former Bank of Japan Deputy Governor Masazumi Wakatabe said the central bank could raise interest rates if inflation expectations continue to rise and add to underlying price pressures, but warned that a further hike this year would be difficult to justify given weak economic momentum.

In an interview with ReutersWakatabe, long considered a monetary policy enthusiast, endorsed the BOJ’s cautious approach to normalization, saying rate hikes should depend on steady economic improvement and a sustainable path toward the 2 percent inflation target. He pointed to weak data, a stagnant labor market and the risk of negative GDP in the third quarter, suggesting little argument for tightening at the December policy meeting.

While stressing that the BOJ must coordinate closely with the government of new Prime Minister Sanae Takaichi, he said the bank did not need to keep rates low simply to finance fiscal spending. “If inflation expectations rise and push core inflation higher, the BoJ can raise interest rates – it must do so to avoid overheating,” he said.

Wakatabe, who served as deputy governor until 2023 and remains close to Takaichi, said the bank had not committed to a specific timetable for further hikes. The yen recently hit an eight-month low after markets interpreted Takaichi’s victory as reducing the likelihood of a near-term tightening.