Ex-BOJ official calls for end to low rates and big spending

Former Bank of Japan (BOJ) board member Asahi Noguchi has declared that Japan no longer needs expansionary fiscal and monetary policies designed to stimulate demand. In an interview with Reuters, Noguchi, who served until March, predicted another interest rate hike by the central bank in December. His remarks reflect a broader shift among former advocates of big spending and loose monetary policy, driven by years of rising inflation and wages.

Noguchi noted that underlying inflation is nearing the BOJ’s 2% target, and wages are stabilizing at levels consistent with that inflation rate. He warned that implementing policies to boost demand at this stage would be too risky. The BOJ has already raised rates in June and September, partly due to the energy shock caused by the Iran war and rising import costs from a weak yen.

While the BOJ has moved cautiously in normalizing policy to avoid economic downturns, Noguchi suggested that global inflationary pressures have forced a faster pace of rate hikes. He emphasized the BOJ’s concern about a potential yen slide below 160 against the dollar, which could trigger another wave of food inflation. Noguchi projected that the BOJ could raise its policy rate to 1.5% in December, with further hikes possible depending on developments in the Middle East conflict and US rate hikes.

Noguchi, once a reflationist advocate of aggressive monetary easing, now argues that Japan should phase out such policies. He warned that excessively loose fiscal policy could push up bond yields and dampen corporate investment. He also cautioned that too-low interest rates could cause further yen depreciation, making reflationary policies obsolete in Japan’s current economic context.