MNI: BOJ's Tamura Says Move Closer To 1% Neutral Rate Needed

Bank of Japan board member Naoki Tamura said Thursday that the central bank needs to raise its policy interest rate to around 1%, the lower end of what he sees as the neutral range, as the current 0.5% rate remains well below that level.

“I believe that it is important from a risk management perspective for the Bank to move closer to a neutral monetary policy stance,” Tamura told business leaders in Naha City, though he did not specify when a rate increase might occur.

Tamura, one of the board’s more hawkish members, argued that the impact of recent hikes on Japan’s economy has been “extremely limited” and that the only way to determine the true level of the neutral rate is to assess economic and price responses as rates rise.

It has become more likely that the BOJ’s 2% price stability target will be achieved earlier than expected, he said citing positive wage and price-setting behaviour among firms, progress in Japan-U.S. tariff talks, and upside risks to inflation.

“If the Bank raises its policy interest rate too late and prices become substantially higher than expected – that is, if the Bank falls behind the curve – it will have to conduct rapid hikes to stabilise prices, which could ultimately inflict significant damage on Japan’s economy,” Tamura warned.

He added there is a “good chance” the inflation target will be achieved earlier than the second half of the BOJ’s projection period and warned of “significant risk” that domestic price developments could exceed those in the July 2025 Outlook Report.

Tamura’s remarks were in line with market expectations following his dissent at the September policy meeting, where he proposed raising the policy rate to 0.75%, a move rejected by the majority.

MNI reported last week that the Bank of Japan is likely to maintain its “no rush” stance on further policy hikes, with officials continuing to emphasise uncertainty around the inflation outlook and the impact of the weak yen. (See MNI POLICY: Yen Fall Unlikely To Drive Swift Japanese Action)