BOJ's Sato backs future rate hikes despite dovish stance

Ayano Sato, a newly appointed policymaker at the Bank of Japan (BOJ), has signaled her support for future interest rate hikes, according to a report by Kyodo news agency. Sato, who was one of two dissenters to the BOJ's September rate hike, emphasized the need to adjust rates in stages to combat inflation risks. She noted that current financial conditions remain accommodative and that the timing of future rate hikes would depend on developments in consumption and income.

Sato's comments come amidst a backdrop of rising inflation, with underlying inflation approaching the BOJ's 2% target. She highlighted that risks to the price outlook are "somewhat skewed to the upside" due to rising crude oil prices linked to the Middle East conflict. Despite her dovish stance, Sato acknowledged that BOJ rate hikes could contribute to achieving sustained economic growth.

The BOJ has been cautious in its policy normalization but recently raised rates in June and September, with the September hike bringing rates to a 31-year high of 1.25%. Governor Kazuo Ueda indicated that the central bank is now focused on preventing underlying inflation from overshooting its target. Markets expect the BOJ to drop hawkish hints in the coming months, reinforcing expectations of a December rate hike.

Sato, appointed by Prime Minister Sanae Takaichi, who favors looser monetary policy, has been seen as one of the more dovish members of the nine-member board. Her dissent in September, along with Toichiro Asada's, pushed down the yen as market players interpreted the move as a sign of continued opposition to rate hikes from Takaichi's administration.