BOJ Shifts Focus from Price Tolerance to Inflation Fighting

Tsutomu Watanabe, a former central bank official and expert on price trends, predicts that Japan's Bank of Japan (BOJ) may shift to an inflation-fighting posture from its current approach by December.

This change would mean accelerating the pace of rate hikes as the BOJ tries to combat rising prices. Watanabe notes that Japan is experiencing a third wave of inflation driven by the Middle East conflict, which will likely be more modest than previous waves.

He predicts consumer inflation excluding fresh food and fuel will peak near 3% in March next year before slowing towards the BOJ's 2% target. However, Watanabe is concerned that underlying inflation is rising and could overshoot to 2.2% if the BOJ maintains its slow pace of rate hikes.

The BOJ has been taking a more passive approach, tolerating price rises as it once did to combat deflation. Watanabe believes the central bank needs to shift to an active approach focusing on combating inflation, which would involve raising rates at a pace of once every quarter rather than twice a year.