BOJ's Sato Supports Gradual Rate Hikes Amid Oil Price Concerns

Bank of Japan (BOJ) board member Ayano Sato, one of the two dissenters in September's rate hike decision, has signaled support for future interest rate increases, albeit at a gradual pace. According to Kyodo News, Sato stated that financial conditions remain accommodative, justifying further rate hikes in stages. However, she emphasized that there should be no pre-set pace for these hikes, leaving the timing flexible.

Sato's remarks are significant as she was previously seen as a advocate for loose monetary policy. Her stance now aligns more closely with the BOJ's broader view that real interest rates are deeply negative. She also highlighted the risks of rising oil costs due to the Middle East conflict, which could skew price outlook to the upside. The BOJ must set policy independently but in line with the government's proactive fiscal stance, she added.

The yen's reaction to Sato's comments will depend on whether other board members share her gradual-but-onward approach. Analysts had previously expected the policy rate to reach 1.5% by the end of March and 1.75% by the second quarter of 2027. Sato's remarks suggest that the dovish bloc may not be as firm in opposing further rate hikes as initially thought.