BoJ board member Asada: any further rate hikes should be cautious and gradual

Bank of Japan board member Asada struck a cautious tone on further rate hikes. His main message: past hikes have not yet fully taken effect, and with the policy rate near the neutral range, each new increase could hit the economy harder.

View on the economy and inflation

• Financial conditions: Japan's financial conditions remain accommodative.
• Underlying inflation: It is fluctuating near levels consistent with the 2% target. He said inflation is now around 2%, so "there is little point in trying to push prices higher."
• Source of inflation: Given weak growth and consumption, current price increases are not necessarily driven by strong demand. Personally, he does not think recent consumption data show notable strength.
• Growth: He expects Japan's economic growth to pick up gradually and moderately.

Concerns about raising rates

• Monetary policy takes at least a year to show its effects, so the cumulative impact of past hikes on corporate financing and household borrowing must be watched closely.
• With the policy rate in the neutral range, further hikes would have a stronger effect on the economy.
• The risk is that hikes, coinciding with weaker consumption, could hurt the economy and pull core inflation down.
• At the same time, the BoJ must watch the risk of underlying inflation overshooting the target, and can use actual consumer inflation data to assess that risk.

On December: Asked about a possible December hike, he said the BoJ must be mindful of the risk that raising rates while consumption weakens could push underlying inflation lower.

Neutral rate and terminal rate

• There is no specific plan for a terminal rate; the terminal and neutral rates are closely linked.
• Japan's nominal neutral rate is probably in the lower part of the range estimated by BoJ staff, but it may be somewhat above the current policy rate.
• Even if the policy rate reaches its target level, the BoJ can still raise or cut it. Decisions will be made at each meeting based on upside and downside risks and financial conditions.

Asada's personal stance

• "I am not entirely opposed to raising rates." Gradual hikes may be needed at some point, but the pace should be cautious.
• He has no plan at present to propose a rate cut.
• Yen: The BoJ does not directly target exchange rates, so he will not comment on a desirable level for dollar/yen.
• Independence: Central bank independence is essential for price stability.

Why it matters for markets

Asada's comments come from the cautious wing of the BoJ board and slightly reduce the odds of a December hike. That is negative for the yen, especially alongside a hawkish Fed. On the other hand, Mimura's recent warning about "too rapid" FX moves is a reminder that a fast yen slide raises the risk of Tokyo intervening in USDJPY.

Questions? Telegram support @fibonacci_chart

---

Source: Remarks by Bank of Japan board member Asada