BOJ Board Member Koeda Signals Further Rate Hikes Warranted as Inflation Anchors Near 2%

Bank of Japan board member Koeda delivered a hawkish set of remarks on October 15, arguing that the conditions for continued monetary policy normalization are falling into place. Underlying inflation in Japan has held around 2% over the past year, with broad-based CPI increases and shifts in price-change patterns indicating that the 2% target is becoming firmly anchored. Koeda cited stable wage growth as evidence that sustained inflation is taking hold more firmly than before.

Koeda stated that Japan's neutral interest rate is considerably above 1%, near the lower end of the current estimated range, and that financial conditions remain accommodative overall despite recent rate increases. On that basis, he argued the BOJ should avoid excessive caution over further rate hikes and instead adjust the policy rate in a timely manner guided by economic and price developments, while keeping the neutral rate range in mind. He added that recent rate hikes are not necessarily expected to weigh on aggregate consumption among working-age households, though he acknowledged the cumulative effects of rate increases on household spending behavior require further assessment.

Koeda also addressed the BOJ's balance sheet, calling steady progress in its normalization essential, while noting that the impact of reducing central bank government bond holdings on long-term yields may be smaller during the reduction phase than it was during active expansion. On the outlook, he flagged upside price risks from yen depreciation, robust global AI demand, and the Middle East situation, and said policymakers must assess whether AI investment can help offset labor shortages and boost productivity when evaluating the monetary policy path. Corporate financing conditions, he added, continue to be favorable overall.