BoJ rate hikes could lower underlying inflation amid weak consumption momentum, Asada warns

Weak consumption warrants caution over further rate increases. Speaking on Thursday, Bank of Japan (BoJ) board member Toichiro Asada said the central bank must consider the risk that higher rates could depress underlying inflation while consumption lacks momentum.

Policy remarks

Asked whether another rate increase, such as in December, would be premature, Asada said policymakers must be mindful of the risk that rate rises could depress underlying inflation while consumption lacks momentum.

In response to a question about whether BoJ rate increases could affect the government’s economic policy, he described central bank independence as an important framework for achieving price stability.

He has no specific terminal rate in mind. In his view, Japan’s nominal neutral rate lies towards the lower end of the range estimated by BoJ staff. 

The terminal rate is very closely linked to the neutral rate. 

As the BoJ does not directly control foreign exchange, he declined to comment on a desirable dollar/yen level. 

BoJ’s Asada signals measured rate hikes, limited FX role

4.2/10 is Asada’s FXS Speechtracker score. That is modestly above the historic baseline of 3.7/10, indicating a slightly more impactful, though still cautious, stance. His warning that rate increases could weaken underlying inflation when consumption is subdued has a dovish tilt. It suggests little appetite for a near-term follow-up increase, including a December hike.

A relatively low eventual peak in interest rates remains the implication of Asada’s remarks. He placed Japan’s nominal neutral rate towards the lower end of BoJ staff estimates and highlighted its close relationship with the terminal rate. His refusal to identify a desirable DOLLAR/YEN level, alongside his emphasis on central bank independence, underscores a continued focus on domestic price stability rather than an exchange-rate target. This should curb expectations that the BoJ will tighten aggressively to support the YEN.

0.09% decline in USD/JPY

USD/JPY is down 0.09%, trading at around 159.72 at the time of publication.