By Leika Kihara
KOBE, Japan, June 25 (Reuters) – The Bank of Japan should raise interest rates at a pace of once every few months to push them towards levels deemed neutral to the economy, hawkish board member Naoki Tamura said on Thursday.
In a speech, Tamura estimated that Japan’s neutral rate lies somewhere around 2%, which is higher than the BOJ’s current policy rate of 1%.
Tamura said he expects inflationary pressures to heighten regardless of developments in the Middle East conflict.
The pass-through of recent rises in import prices could occur more quickly, significantly and broadly than in the aftermath of Russia’s invasion of Ukraine in 2022 due to changes in companies’ price-setting behaviour, he said.
“Considering the recent increase in upside risks to prices, 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%,” Tamura said.
“If the chance of upside price risks materialising heightens, it’s necessary to accelerate the pace of rate hikes without hesitation by increasing the frequency or size of rate hikes,” he said.
(Reporting by Leika Kihara; Editing by Muralikumar Anantharaman and Shri Navaratnam)
