BoJ's Tamura says rates should rise 25bp every few months to 2% neutral level. Underlying inflation already at target, companies passing on costs faster. Yen faces further downside risk if BoJ follows through.
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Bank of Japan board member Naoki Tamura laid out his clearest roadmap yet for further policy normalization on Thursday. He said the central bank should raise rates by 25 basis points every few months until the policy rate reaches around 2%, a level he views as neutral.
"What I envisage as a baseline path is raising the policy interest rate by 0.25 percentage points at intervals of a few months toward the neutral interest rate level of 2 percent," Tamura said in a speech. The remarks come a week after the BoJ lifted rates to 1.0%.
Tamura argued that inflation risks have become more pronounced. Underlying inflation is already at the Bank's 2% target, and inflation expectations continue to rise. He noted that companies are passing on higher import costs "more quickly, significantly and broadly" than after Russia's invasion of Ukraine in 2022, reflecting a structural shift in corporate pricing behavior. The Middle East conflict has contributed to higher energy costs, he said, stressing that upside inflation risks warrant attention regardless of how the geopolitical situation evolves.
Tamura also left the door open to a faster pace of tightening if inflation pressures prove more persistent. "If the chance of upside price risks materializing heightens, it's necessary to accelerate the pace of rate hikes without hesitation by increasing the frequency or size of rate hikes," he said.
Tamura is widely regarded as one of the BoJ's most hawkish policymakers. His remarks reinforce the message from last week's policy meeting and Wednesday's Summary of Opinions: the debate within the Board has shifted firmly toward how quickly rates should continue moving higher, not whether they should.
For the yen, a faster normalization path would narrow the rate differential with the US, reducing the appeal of carry trades that have weighed on the currency. USDJPY has already moved lower since last week's hike. Tamura's roadmap suggests further downside risk if the BoJ follows through. The forex market analysis section tracks these expectations through rate differentials and positioning data.
The Summary of Opinions from last week's meeting, released Wednesday, already showed the Board leaning toward further tightening. Tamura's speech confirmed that the shift is firm: the question is now the pace, not the direction.
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