BOJ Policymaker Warns Rapid Rate Hikes May Be Necessary Amid Accelerating Inflation

Bank of Japan policymaker Kazuyuki Masu warned that accelerating inflation may force the central bank to raise interest rates rapidly. In a speech ahead of next week's policy meeting, Masu stated that price risks solidify the chance of a September hike.

Masu also 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. He cautioned that recent data did not show signs of a big, rapid overshoot in inflation, suggesting the BOJ sees little need for a bigger-than-expected 50-basis-point rate hike next week.

Masu refrained from giving explicit hints on the timing and pace of future rate hikes, stressing the need to carefully gauge how close the BOJ's policy rate was to levels deemed neutral to the economy at each meeting. He stated that underlying inflation is about to reach 2%, but does not see it sharply overshooting that level.

The BOJ raised interest rates to a 31-year high of 1% in June and kept rates steady in July, signaling a strong chance of a near-term hike due to mounting price pressures from the Middle East war and a weak yen. Analysts expect the BOJ to hike rates to 1.25% next week and then to 1.75% in the second quarter of 2027.