Bank of Japan Official Urges Patience on Rate Hikes

A prominent member of the Bank of Japan’s policy board emphasised the need to maintain easy financial conditions until inflation expectations become firmly established, underscoring the bank’s cautious approach to tightening monetary policy. The remarks came a day after Japan’s newly appointed Prime Minister, Shigeru Ishiba, urged restraint on rate hikes.

Asahi Noguchi, one of the more dovish voices on the nine-member board, addressed the issue during a speech in Nagasaki on Thursday. “It will take time for the public to fully align with the 2% inflation target,” Noguchi said. “Until that happens, it’s essential to patiently maintain accommodative financial conditions.”

Noguchi, who was one of two dissenters during the Bank of Japan’s July 31 rate hike decision, echoed concerns that policy adjustments should not be rushed. His comments follow Prime Minister Ishiba’s statement on Wednesday, where the leader expressed that the current environment doesn’t warrant an immediate rate hike. This highlights that dovish sentiment persists within the central bank even as it looks to gradually unwind its ultra-loose monetary policy.

In his dissent against the July rate hike, Noguchi called for more time to analyze data before making a decision. His latest comments align with those of Governor Kazuo Ueda, who has also suggested there is no urgency to raise the benchmark rate. Economists widely expect the Bank of Japan to hold its policies steady at its next meeting on October 31, with many predicting that any further adjustments may not come until early next year.

Japan’s stock market responded positively on Thursday, while the yen continued to weaken, following a significant drop the previous day after Prime Minister Ishiba met with Governor Ueda and reiterated that the conditions weren’t suitable for another rate hike.

Despite his cautious stance, Noguchi pointed to some encouraging signs, such as improvements in service prices, wages, and consumer spending, suggesting that a future rate hike is not entirely off the table.

However, Noguchi warned that any further adjustments to easing must be done with extreme caution, comparing the process to “crawling forward on elbows and knees.” He stressed that predicting the ideal level for the benchmark rate in advance is difficult, requiring a careful, incremental approach.

When asked about Ishiba’s remarks, Noguchi declined to comment directly, stating that while the views of politicians are important, monetary policy must remain focused on achieving the bank’s inflation target.