Former BOJ Member Calls for End to Low Rates as Inflation Nears Target

Japan's central bank may soon shift its long-standing low-interest-rate policy as economic conditions improve. Former Bank of Japan (BOJ) board member Asahi Noguchi argues that Japan no longer needs aggressive fiscal and monetary support, given that core inflation and wage growth are nearing the 2% target. Noguchi anticipates the BOJ could raise its policy rate to 1.5% in December, up from the current 1.25%, with potential further hikes to 1.75% or 2%, depending on the Federal Reserve's actions and Middle East risks.

Noguchi warns that additional government spending could push up bond yields, potentially crowding out private investment due to Japan's positive output gap. He highlights the BOJ's concern over yen weakness, particularly if the currency falls beyond 160 against the dollar, which could trigger another wave of food inflation. Despite recent market expectations of a U.S. rate hike in October, Noguchi believes the BOJ may hold rates steady this month but sees a strong chance of a December increase.

The former BOJ board member also notes that the central bank has accelerated policy normalization after raising rates in June and September. He emphasizes the need for cautious rate hikes, as a move to 2% could risk damaging households and companies accustomed to ultra-low borrowing costs. Meanwhile, rising bond yields are giving investors alternatives to equities, potentially sparking a correction in the Nikkei 225 and pressuring companies like Mitsubishi to optimize cash flow.