BOJ Likely to Raise Rates to 1.5% in December Says Former Member Noguchi

Asahi Noguchi, a former Bank of Japan (BOJ) board member, anticipates another interest rate hike in December, bringing the rate to 1.5%. Speaking to Reuters, Noguchi argued that Japan no longer needs expansionary fiscal and monetary policies, as underlying inflation is nearing the BOJ's 2% target. He highlighted that wage growth is now consistent with 2% inflation, making demand-boosting policies risky.

The BOJ has already raised rates in June and September, accelerated by an energy shock linked to the Iran war and a weak yen driving up import costs. Noguchi noted that the BOJ prefers gradual adjustments to avoid economic downturns but is compelled to act faster to prevent further yen depreciation. A slide below 160 yen per dollar could trigger food inflation, though the BOJ is unlikely to openly acknowledge this concern.

Noguchi expects the BOJ to hold steady in October due to receding prospects of a US rate hike but foresees a December increase to 1.5% from the current 1.25%. He suggested the BOJ could eventually lift rates to 1.75% or even 2%, depending on US rate movements and Middle East developments. However, a hike to 2% might shock households and firms accustomed to ultra-low borrowing costs.

Despite the BOJ's preference for cautious rate adjustments, Noguchi emphasized that market forces will likely dictate a faster pace of changes.