Former BOJ Member Predicts December Rate Hike Amid Policy Shift

Former Bank of Japan (BOJ) board member Asahi Noguchi, a reflationist academic, argues that Japan no longer needs aggressive fiscal and monetary policies to stimulate demand. In an interview with Reuters, Noguchi projected another interest rate hike by the BOJ in December, highlighting a shift in mindset among policymakers who once advocated for big spending and loose monetary policy.

The remarks come as years of rising inflation and wages have prompted a reevaluation of Japan's economic strategy. Noguchi noted that underlying inflation is near the BOJ’s 2% target, and wages are aligning with this inflation level. He warned that implementing policies to boost demand could be too risky in the current economic climate.

The BOJ has recently accelerated its rate hikes, raising rates in June and September due to energy shocks and rising import costs from a weak yen. Noguchi suggested that the BOJ may raise its policy rate to 1.5% from the current 1.25% in December, potentially reaching 1.75% or even 2% depending on global economic developments. However, he cautioned that a rate hike to 2% could shock households and firms accustomed to ultra-low borrowing costs.

Noguchi also criticized Prime Minister Sanae Takaichi’s big spending plans, which he believes have contributed to the selloff of the yen and Japanese government bonds. He argued that excessive fiscal policy could push up bond yields and dampen corporate investment, making reflationary policies no longer necessary for Japan.