TOKYO: The Bank of Japan (BoJ) will likely consider raising interest rates at each upcoming meeting, according to a new book by former bank chief Haruhiko Kuroda, who supported his successor’s current push to unwind a decade of extremely loose monetary policy.
Kuroda’s views contrast with those of his former deputy Masazumi Wakatabe, whose book published in September warned against premature rate hikes and urged policymakers to stay focused on boosting demand.
The remarks show a divergence in policy thinking between Kuroda, who took part in the monetary leg of former premier Shinzo Abe’s “Abenomics” reflationist policies, and Wakatabe who, together with Prime Minister Sanae Takaichi have focused on preserving the legacies of “Abenomics”.
While raising interest rates too hastily could cause economic stagnation, moving too slowly could prevent incumbent governor Kazuo Ueda from completing policy normalisation, Kuroda said.
“I’m sure the BoJ will examine whether to raise interest rates by 25 basis points at each policy meeting to bring them close to levels deemed neutral to the economy,” he said in the book published this month, which looked back at his decade at the helm at the BoJ.
Wakatabe, however, believes there are other priorities for monetary policy.
“Real economic growth remains low and while Japan is experiencing inflation, half of the price rises are driven by cost-push factors,” Wakatabe said in his book on Takaichi’s economic policies.
Wakatabe is known as a reflationist with close ties to Takaichi and serves as a member of a key government economic panel.
Kuroda deployed a radical stimulus programme in 2013 with a pledge to fire up inflation to the BoJ’s 2% target in two years.
But the target proved elusive, forcing the BoJ to maintain ultra-loose policy throughout his term that ended in 2023.
Ueda steered an exit from Kuroda’s stimulus in 2024, as a tight job market and rising raw material costs from the Ukraine war lifted consumer inflation. The BoJ has raised rates several times, including in September to a 31-year high of 1.25%, and is likely to declare victory on Friday in its 14-year battle to meet its price target.
In his book, Kuroda said he sought to eradicate Japan’s deflationary mindset with simple communication, and “cut off his escape route” by setting a timeframe for hitting the price goal at the risk of depriving the BoJ of policy flexibility.
He said he became convinced Japan had fully emerged from deflation around 2024 as wages began to rise. Wakatabe served as deputy BoJ governor from 2018 to 2023.
He is seen as among candidates to succeed Ueda when his term ends in 2028, if Takaichi were to stay on as premier long enough to hand-pick the next BoJ chief.
“The BoJ would need to do quite some explaining if it were to raise rates when real economic growth is negative and price rises are driven mostly by cost-push factors,” Wakatabe wrote in his book.
A rate hike is possible if Takaichi’s spending plans and growth strategies stimulate investment and fund demand and push up Japan’s neutral rate, he said. — Reuters
