Ignoring Tokyo Turmoil, Hardest-Line BOJ Official Stands Firm on Rate Hike Path

TradingKey - Amid a wave of political upheaval in Japan that has disrupted the Bank of Japan’s (BOJ) rate hike momentum, Naoki Tamura, one of the central bank’s most hawkish board members, is holding firm on his call for continued tightening. He warns that yen weakness risks fueling inflation, and delaying action could force even more aggressive rate hikes later — with greater economic damage.

Tamura, who voted against the status quo at the September policy meeting, said on Thursday, October 16, that the BOJ is now at a stage where it must raise interest rates and gradually reduce monetary stimulus to bring policy closer to neutral levels.

This is Tamura’s first public comment since the September meeting. In the intervening weeks, political turmoil has raised the bar for further rate hikes, including the collapse of Japan’s ruling coalition.

As a result, market expectations for a rate hike at the October 31 policy meeting have collapsed from 70% at the end of September to just 15%.

Yet Tamura remains steadfast.

Tamura argues that the BOJ is increasingly likely to achieve its 2% inflation target earlier than officially projected. If the central bank delays tightening, it may be forced into abrupt, sharp rate hikes later to regain control — a scenario that would inflict far greater harm on the economy.

He also highlighted growing inflationary pressures from currency depreciation:

• Companies are becoming more aggressive in raising prices
• Wage gains are strengthening
• A weaker yen is amplifying imported inflation

“We need to be mindful of the fact that the foreign exchange rate is more likely to affect inflation after businesses have become more active about raising prices and wages.”

After months of weakening, the US dollar has recently rebounded due to multiple factors, with the USD/JPY exchange rate rising by over 2.60% in the past month. As of writing, the exchange rate stands at 151.27 yen per dollar.