Former BOJ Policymaker Asahi Noguchi Calls for End to Low Rates

Former Bank of Japan (BOJ) board member Asahi Noguchi has signaled that Japan’s era of expansionary fiscal and monetary policies is over. In an interview with Reuters, Noguchi, who served until March, projected another interest rate hike by the BOJ in December. He argued that with underlying inflation near the BOJ’s 2% target and wages rising to levels consistent with that inflation, policies aimed at boosting demand would now be too risky.

The BOJ has recently accelerated its rate hikes, raising rates in June and September amid rising inflation pressures, including an energy shock triggered by the Iran war. Noguchi noted that the BOJ had little choice but to speed up rate hikes to prevent further declines in the yen, which has hovered around 158 per dollar, a level seen as a potential trigger for yen intervention.

Noguchi predicted the BOJ could eventually raise its policy rate to 1.75% or even 2%, depending on developments in the Middle East conflict and U.S. rate hikes. While he deemed a 1.75% rate hike manageable, a 2% hike could shock households and firms accustomed to ultra-low borrowing costs. He also warned that excessively loose fiscal policy could push up bond yields and dampen corporate investment, urging Japan to phase out reflationary policies.

Investors have sold yen and Japanese government bonds amid concerns the BOJ may be lagging behind on inflation. Noguchi, now a professor at Senshu University, criticized Premier Sanae Takaichi’s big spending plans, arguing they heighten attention to Japan’s worsening finances. He emphasized that Japan no longer needs policies to boost demand, as expansionary fiscal policy could crowd out private investment and further weaken the yen.