Bank of Japan board member Toichiro Asada pushed back on Thursday against calls inside the board for a faster pace of rate increases, arguing that moving prematurely could weigh on growth and push down underlying inflation. Asada dissented from the Bank’s decisions to raise rates in June and again in September, which took the policy rate to its current 1.25 percent.
“I believe recent price increases have not necessarily been driven by demand factors,” Asada told business leaders in Nagasaki. “In this sense, I consider it necessary for the Bank to give due consideration to the pace of any policy rate hikes.” He said the economy was growing moderately and underlying inflation was moving around the Bank’s 2 percent target, but that recent data showed consumption lacking momentum, and in a briefing after the speech he said various indicators suggested underlying inflation had roughly reached the 2 percent target.
Asada’s caution rests on where the policy rate now sits. He said the risk that hikes cool growth grows now that the rate has entered the 1.1 to 2.5 percent range that Bank staff estimate as Japan’s neutral rate, where policy neither cools nor overheats the economy. Financial conditions remain accommodative, he said, but the degree of monetary support is gradually diminishing, and the impact of earlier increases will show through with a lag of at least a year.
The remarks land against the board’s recent direction. The Bank kept rates steady in October while declaring its long battle to reach the price target won and flagging upside price risks, and the summary of opinions from that meeting showed some members favouring a faster hiking pace against stubborn energy costs and yen-driven import prices. Analysts polled by Reuters expect the Bank to raise the policy rate to 1.5 percent in December and to keep a quarterly pace, with most seeing a terminal rate of 1.75 or 2 percent. Asada and fellow dove Ayano Sato, who also voted against the September increase and joined the board this year, are the visible counterweight.