MNI: BOJ's Tamura Sees Early 2% Target Hit

Bank of Japan board member Naoki Tamura signaled a more hawkish stance on Wednesday, suggesting the Bank’s 2% inflation target could be achieved earlier than expected and calling for a steady normalisation of monetary policy and the BOJ’s balance sheet.

Speaking to business leaders in Fukushima City, Tamura said he does not view the 0.5% policy rate as a ceiling, citing both rising inflation and changes in bank lending rates compared to the previous rate-hike cycle.

Tamura, a former commercial bank executive, noted that underlying inflation is already at levels generally consistent with the BOJ’s price stability target. “The Bank's outlook for economic activity and prices can be described as provisional, and attention is warranted on upside risks to prices,” he continued. “In this situation, I believe there is a good possibility that the price stability target will be achieved earlier than expected.”

He stressed the BOJ may need to act decisively if price risks develop and the likelihood of achieving the price stability target increases, pushing back on the idea that a 0.5% policy rate represents a ceiling. In 2007–08, when the policy rate stood at 0.5%, core CPI was around 0.0–1.5%, whereas it is now above 3.5%, he argued.

“Second is the change in the level of lending rates of commercial banks and 2008, short-term lending rates were in the range of 1.5-1.7%, but the rate currently remains low at around 0.7%,” he added.

JGB TAPER

Tamura reiterated his opposition to the BOJ’s decision at the June 16-17 policy meeting to slow the pace of JGB tapering. At the meeting, he argued that the Bank should allow long-term interest rates to be determined by market forces and proposed continuing with JPY400 billion quarterly reductions in JGB purchases until Q1 2027. (See MNI BOJ WATCH: Ueda Flags Gradual Hikes, Warns Of JGB Risks)

However, his proposal was rejected by majority vote. “The degree of JGB market functioning has stayed low, albeit having improved, and such aftereffects of the Bank’s large-scale easing will likely remain for some time,” he said. “I therefore believe that, although it will take time, the Bank needs to proceed steadily with the normalisation of its balance sheet, while closely monitoring market conditions.”