In an interview with Reuters, Noguchi Akira (野口旭), a former Bank of Japan Policy Board member and professor at Senshu University, said that reflationary policy had fulfilled its role and warned that further demand expansion would entail many risks while the output gap remained positive. He said the BOJ could raise its policy rate to around 1.75% going forward, and to around 2% depending on circumstances.
Noguchi (野口) said that reflationary policies had fulfilled their role and expressed concern that expanding demand from here would entail many risks while the output gap remained positive. He also said that the BOJ could raise interest rates to around 1.75% going forward, and possibly to around 2% in some circumstances.
He said that the fact that wage growth had settled at around 3% meant that the underlying inflation rate was steadily approaching 2%, and that there was currently little need to provide excessive support for demand. He said fiscal expansion would increase the risk of crowding out, while a delay in raising interest rates would create risks of inflation and further yen depreciation.
Regarding the BOJ's September rate hike, he said the decision needed to be made carefully as underlying inflation approached 2%, while expressing the view that the BOJ may have had no choice but to raise rates in light of the extent to which the move had been priced into the market.
He did not rule out the possibility that the BOJ could be forced into consecutive rate hikes against a backdrop of mounting global inflationary pressure, and also expressed the view that the possibility of a December rate hike remained high. He said it was desirable in the current environment to keep real interest rates in negative territory, and pointed out that exchange-rate trends were an important factor for the BOJ.