MNI: BOJ Noguchi Sees Flexible Policy; Underlying CPI Focus

Bank of Japan board member Asahi Noguchi said on Monday that the Bank's monetary policy is entering a phase requiring careful assessment.

“I personally believe that the Bank needs to flexibly adjust its monetary policy while examining price developments, in response to economic developments at home and abroad at the time,” Noguchi told the Sapporo Chamber of Commerce and Industry.

He downplayed the prospect of an imminent rate hike, emphasising the need to assess underlying inflation carefully. (See MNI POLICY: BOJ To Mull Phasing Out Underlying CPI)

“In the current situation, however, where it is likely that the labour market is close to full employment and that the output gap has almost reached 0%, it is necessary to consider not only downside risks but also upside risks.” he said.

Noguchi added that Japan will eventually need a new policy perspective addressing upside risks, while also facing downside pressures from U.S. tariff policies. 

“Especially since April 2025, the global economy has faced large downside risks arising from U.S. tariff policy," he noted. "It is not yet clear at what point and to what extent these risks will be resolved.”

INFLATION TARGET

He highlighted progress toward the 2% price stability target. “Various economic indicators for Japan show steady progress in achieving the 2% price stability target," he continued. "This suggests that the need to adjust the policy interest rate is increasing more than ever.”

“Put differently, in terms of making policy decisions, upside risks to prices and economic activity in Japan are currently outweighing the downside risks. In this sense, it can be said that monetary policy in Japan is now entering a phase in which a careful assessment of the situation is necessary."

On inflation, Noguchi said CPI growth has remained high despite falling yen-denominated import prices, with a notable contribution from rising rice prices. "This high inflation likely reflects a shift in firms’ price- and wage-setting behavior. It may take more time for real wages, adjusted for inflation, to turn upward.”