Masahiro Nakaso, former Deputy Governor of the Bank of Japan, stated on Tuesday that the Bank of Japan might continue to raise the benchmark interest rate to 1% and will seek opportunities to increase rates as the economic situation evolves. Nakaso emphasized that interest rates are the most effective tool for influencing the economy, and further rate hikes will help create room for necessary policy adjustments. He also pointed out that the Bank of Japan should communicate clearly with the market to ensure that each decision is consistently understood.
In the current tightening cycle, the Bank of Japan made its third rate hike in December last year, raising the policy rate to 0.5%, the highest level in 16 years. Bank of Japan Governor Kazuo Ueda has indicated that the possibility of further rate hikes still exists, and the Bank of Japan is still some way from a neutral rate. Economists generally expect further rate hikes might occur around the summer.
Nakaso also mentioned that supported by wage growth and the recovery of the U.S. economy, the Japanese economy is unlikely to face a severe recession. He also stressed that the government needs to strive to reduce the debt-to-GDP ratio and warned that financial pressures might pose risks.
