Matsuyama, Japan, Feb 6 - Bank of Japan board member Kazuyuki Masu said the central bank must implement interest rate increases in a timely way to prevent underlying inflation from exceeding its 2% target.
Masu said he believes Japan's underlying inflation remains below the 2% threshold but is "drawing very close" as both companies and households move away from entrenched deflationary behaviour. He delivered the remarks in a speech to business leaders in Matsuyama in western Japan.
"I am convinced that continuing with further policy interest rate hikes will be needed to complete the normalization of monetary policy in Japan," Masu said, framing additional rate rises as necessary to finish the transition back to a more conventional policy stance.
He stressed that with Japan apparently entering an inflationary phase, the BOJ must ensure that underlying inflation stays below 2% through what he called "timely and appropriate rate hikes". At the same time, Masu warned against excessive tightening, saying that care is required so as not to undermine the developing positive interaction between prices and wages.
"At the same time, it is critical to ensure excessive rate hikes do not disrupt the virtuous cycle of a moderate rise in prices and wages that has finally begun to gain momentum in Japan," he said, adding that the BOJ will therefore proceed cautiously with rate hikes.
Masu's remarks underline a dual objective for policy: move rates higher to prevent inflation from overshooting the 2% goal, while calibrating the pace of hikes to preserve the fragile upturn in wages and prices that policymakers have been seeking.
Context and implications
The comments reflect a balance between preventing inflation from becoming entrenched above target and avoiding abrupt tightening that could interrupt a nascent wage-price dynamic. Masu linked the change in inflation dynamics to shifts in behaviour among companies and households away from long-standing deflationary expectations.
He indicated that further increases in the policy rate will be needed to complete normalization, but also signalled a cautious approach to the timing and size of those moves to avoid derailing the improving wage and price cycle.