TOKYO: A Bank of Japan (BoJ) board member calls for interest rates to be increased as soon as possible provided there is no indication of the economy running into trouble, citing more enduring inflationary risks from the war in Iran.
“If statistical data do not indicate clear signs of an economic downturn, I believe it is desirable to raise the policy rate at the earliest stage possible,” Kazuyuki Masu said yesterday at a local business conference in Kagoshima, western Japan.
Masu’s remarks suggest higher chances of the BoJ resuming rate hikes as soon as the central bank’s meeting next month, in line with expectations among traders.
They added momentum for such a move after three of his fellow board members called for a hike in April when the central bank held rates steady, in the biggest split under Kazuo Ueda’s governorship.
The yen gained sharply after the release of Masu’s speech, around the same time of news that Chinese President Xi Jinping told US President Donald Trump during their meeting that Taiwan remains the most critical issue in China-US relations.
The currency pared some gains, trading around 157.85 per dollar around 1.55pm in Tokyo. Earlier yesterday, the currency slid back to levels last seen on April 30, the day Japanese authorities intervened in the market for the first time since 2024.
Masu’s “shift from mild to strong hawk carries greater significance than the yen price action suggests”, said Neil Jones, managing director of currency sales and trading at TJM Europe.
Masu – a former executive at Mitsubishi Corp, one of Japan’s largest trading firms –said that while it’s possible rising fuel prices from the Middle East conflict could prove temporary, there’s a risk it accelerates Japan’s “already mounting” distribution costs.
“There are concerns that these factors may not be temporary shocks but rather represent more enduring trends that risk pushing up prices,” Masu said.
In February, Masu called for further rate hikes to get policy back to a normal setting and yesterday’s speech indicates his stronger conviction of the move.
Japan has one of the lowest interest rates in the world, and its rate gap with other major economies has been cited as a key source of weakness in the yen.
Market pricing in overnight index swaps suggests traders are assigning roughly 75% probability to BoJ rate increase next month.
The central bank is due to announce its policy decision on June 16.
Earlier this week, US Treasury Secretary Scott Bessent had a series of meetings with monetary and fiscal authorities in Tokyo, sharing the view with his Japanese counterpart Satsuki Katayama that excess foreign-exchange volatility is undesirable.
That was understood as tacit US approval of Japan’s recent market intervention, though Bessent has hinted he’d rather see higher local interest rates rather than direct market support to lift the yen.
“Due attention should be paid to whether inflation triggered by the yen’s depreciation may raise people’s inflation expectations and, in turn, affect underlying inflation,” Masu said. — Bloomberg
