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

Former Bank of Japan (BOJ) board member Asahi Noguchi has called for an end to Japan's long-standing expansionary fiscal and monetary policies, arguing that the country no longer needs measures aimed at boosting demand. In an interview with Reuters, Noguchi projected another interest rate hike by the BOJ in December, citing rising inflation and wages that are now consistent with the central bank's 2% target.

Noguchi, a reflationist academic who served at the BOJ until March, noted that the central bank has recently accelerated its rate hikes due to price pressures from rising import costs and a weak yen. The BOJ raised rates in June and September, partly in response to the energy shock caused by the Iran war. Noguchi suggested that the BOJ may lift its policy rate to 1.5% from the current 1.25% in December, potentially reaching 1.75% or even 2% depending on global inflationary pressures and developments in the Middle East conflict.

The former BOJ policymaker also warned against excessive government spending, stating that Japan's output gap is now positive and that expansionary fiscal policy could push up bond yields and dampen corporate investment. Noguchi, currently a professor at Senshu University, argued that reflationary policies no longer have a role to play in Japan, as excessively loose fiscal policy could cause yen falls and crowd out private investment.

Investors have been selling yen and Japanese government bonds on concerns that the BOJ may be behind the curve on inflation. Premier Sanae Takaichi's big spending plans have also been blamed for the selloff, heightening attention to Japan's worsening finances. Noguchi emphasized that with so much uncertainty about the economic impact of rate hikes, the BOJ must proceed cautiously but acknowledged that market forces may not allow it to do so.