BOJ May Need Rapid Rate Hikes if Inflation Accelerates, Masu Warns

The Bank of Japan (BOJ) may need to raise interest rates quickly if inflation accelerates, according to board member Kazuyuki Masu. Financial conditions in Japan remain accommodative, and a recent spike in producer prices warrants attention.

With companies actively passing on higher costs from the Middle East conflict and the weak yen, producer prices have risen. Rising fuel and chemical prices due to the Iran conflict could push up transportation costs, affecting overall prices, Masu said.

The BOJ is expected to hike interest rates to 1.25% on September 18 and then to 1.75% in the second quarter of 2027, a Reuters poll showed. Underlying inflation has yet to reach but is close to the BOJ's 2% target, Masu said.

Masu believes the BOJ needs to raise its policy rate further as it falls within the estimated range of the neutral interest rate. This would ensure flexibility to adjust the policy rate in either direction depending on economic conditions, he added.