BOJ Policy Board Member Masu Calls for Early Exit from Negative Real Interest Rates, Favors Continued Rate Hikes

Bank of Japan Policy Board member Masu (増) said in a speech and press conference that the current situation of negative real interest rates should be brought to an end as soon as possible. Masu emphasized the importance of containing inflation while keeping real wages positive, and made clear an intention to continue raising interest rates.

Against the backdrop of current financial conditions considered accommodative, Masu indicated a policy of raising the policy rate to adjust the degree of monetary accommodation. Masu said the timing and pace of policy adjustments would be determined after reviewing the outlook and risks in the Outlook Report.

Regarding monetary normalization, Masu explained that bringing the policy rate firmly into the neutral rate range would enable more flexible measures. Masu indicated that further rate hikes would be required to achieve that condition, and suggested that the reduction in the size of the BOJ's asset holdings and interest rate increases could be considered separately.

On price trends, Masu analyzed the underlying inflation rate as being close to 2%, while pointing out that increases in labor and logistics costs were having an impact. Masu also mentioned concerns that higher fuel and chemical prices stemming from the situation in Iran could become an underlying upward pressure factor.

Masu emphasized that the most important priority was to contain underlying inflation so that it does not significantly exceed 2%. Masu warned that an acceleration in inflation could create a risk of being forced to raise interest rates rapidly. Markets are increasingly expecting an additional rate hike at this month's meeting, but the decision remains uncertain depending on energy price trends.