(Bloomberg) -- Bank of Japan Board Member Hajime Takata highlighted the need for higher interest rates if inflation continues to develop in line with the bank’s outlook, although he indicated there’s no need to rush any move.
“It will be necessary to adjust the degree of monetary easing by shifting up another gear” if inflationary trends align with projections, Takata said Thursday in a speech in Ishikawa, on the coast of the Sea of Japan. “We need to proceed with making a world with positive interest rates.”
Takata later told reporters at a press conference that he’s seeing progress toward achieving a virtuous cycle in which rising wages spur spending, supporting demand-led inflation, but any policy moves will be conditional on data.
Takata’s remarks reinforce the message delivered recently by Governor Kazuo Ueda that the bank will continue to normalize its policy as economic conditions allow, rolling back ultra-easy settings. At the same time, he signaled there’s no rush to move immediately by citing the need to monitor financial markets after global markets saw turmoil early last month.
Takata was speaking after Japanese workers’ real wages rose for a second consecutive month in July, following more than a two-year of a monthly decline. Within the data, a closely watched gauge by the BOJ that avoids sampling problems and excludes bonuses and overtime showed that wages for full-time workers increased by a record 3%.
What Bloomberg Economics Says...
“For policy, the wage data increase our conviction that a rate hike will be on the table at the October meeting — though uncertainty over the pace of the US slowdown means it’s not a clearcut call.”
— Taro Kimura, economist
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The yen was mostly stable after Takata’s remarks. The currency rose as high as 143.19 per dollar following the stronger-than-expected wage data. The yen has reversed its weakening trend in past weeks following the BOJ’s July 31 rate hike to 0.25%. Clear hawkish signals conveyed by Ueda after that meeting contributed to a massive selloff in global markets in early August.
“We must closely monitor and examine market developments for the time being” as the effects of the global turmoil persist, Takata said. In remarks that echoed those of Ueda, Takata noted the need to monitor the impacts of each rate hike on the economy as it’s hard to pinpoint the natural rate of interest. This stance signals that authorities won’t undertake a rapid succession of rate moves.
In his afternoon remarks, Takata said he didn’t have any set ideas in terms of how many rate hikes might be required, or the potential range for moves.
Almost all economists predict the BOJ will stand pat when the board next sets policy on Sept. 20. Most expect a move sometime between October and January.
Takata, a former veteran market economist, joined the nine-member board in July 2022. He has supported every decision by the board. Speaking in February, Takata gave an early sign of the BOJ’s shift toward ending its massive easing program by saying the bank’s inflation target had come into sight. A month later the bank raised its benchmark rate for the first time in 17 years.
(Updates with comments from afternoon press conference)
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