BOJ Policymaker Warns of Rapid Rate Hikes Amid Inflation Risks

BOJ policymaker Kazuyuki Masu warned of price risks that could lead to rapid interest rate hikes. He said inflation acceleration, coupled with loose financial conditions in Japan, might necessitate swift and substantial increases in borrowing costs.

Masu noted that underlying inflation is 'very close' to the BOJ's 2 percent target, driven by rising producer prices, fuel, and chemical costs. These factors could push up consumer inflation more than previously seen, with companies passing on higher costs from the Middle East conflict and a weak yen.

He emphasized the need for the BOJ to pull real interest rates out of negative territory as soon as possible, signaling concern over the demerits of too-low borrowing costs. Masu's remarks added to hawkish commentary from other BOJ officials and pressure from U.S. Treasury Secretary Scott Bessent.

The yen rose against the dollar following Masu's comments, with analysts polled by Reuters expecting a rate hike next week and further increases in the second quarter of 2027. The BOJ raised interest rates to 1 percent in June and kept them steady in July, signaling a strong chance of a near-term hike.

Masu's warning also highlighted concerns over potential overheating in corporate investment, as firms' appetite for funding remains unchanged despite recent rate hikes. He cautioned that the timing and pace of future rate hikes would depend on the likelihood of the economy achieving the BOJ's baseline scenario and risks such as price pressures from oil costs.