Former BOJ Member Calls for End to Low Rates and Big Spending

Former Bank of Japan (BOJ) board member Asahi Noguchi, known for his reflationist views, has declared that Japan no longer needs expansive fiscal and monetary policies designed to stimulate demand. In an interview with Reuters, Noguchi, who served at the BOJ until March, predicted another interest rate hike by the central bank in December.

Noguchi emphasized that underlying inflation is nearing the BOJ's 2.0% target, and wages are aligning with that level. He warned that policies aimed at boosting demand could now pose unnecessary risks. The BOJ has recently accelerated its rate hikes, raising rates in June and September, partly in response to the energy shock triggered by the Iran war and rising import costs due to a weak yen.

According to Noguchi, the BOJ is concerned about the yen sliding below 160 against the dollar, which could trigger another wave of food inflation. While the BOJ may pause in October due to receding prospects of a US rate hike, Noguchi expects a rate increase to 1.5% from the current 1.25% in December. He also suggested the BOJ could eventually raise rates to 1.75% or even 2.0%, depending on global inflationary pressures and developments in the Middle East conflict.

Noguchi, who initially advocated for aggressive monetary easing, now argues that Japan should phase out reflationary policies. He cautioned that excessive fiscal spending and low interest rates could lead to a weaker yen and higher bond yields, ultimately dampening corporate investment. Investors have been selling yen and Japanese government bonds, partly due to concerns that the BOJ may be lagging behind in addressing inflation.