A gradual path for interest rate hikes is expected

Bank of Japan (BoJ) board member Naoki Tamura said during the Asian session on Thursday that the road to ending easy policy is still very long.

Key quotes:

Japan’s neutral rate is likely to be around 1% at minimum.

It will carefully consider the pros and cons of opting out of the simple policy.

It needs to raise short-term rates by at least about 1% by the second half of our longer-term forecast period to fiscal 2026 to stably reach the 2% inflation target.

It needs to raise short-term rates in several stages while examining how the economy, inflation respond to such steps.

It will closely monitor financial market movements and their impact on the economy and prices.

It needs to raise rates at the right time and in several stages.

The pace at which markets expect the Boj to raise rates is very slow, rising at this pace could further increase the risk of inflation.

Expect consumption to pick up modestly due in part to a reversal of the yen’s one-sided and steep declines.

It further increases the likelihood that Japan will sustainably hit the BoJ’s price target.

See the increase in inflation risk for yourself.

Market reaction:

Solicitation comments reaffirm market expectations for a further rate hike by the BoJ in 2024 and provide some support to the Japanese yen (JPY), capping USD/JPY’s recovery from a multi-month low near the 143.00 mark .