By Leika Kihara
NAGASAKI, Japan, Nov 12 (Reuters) – Dovish Bank of Japan policymaker Toichiro Asada pushed back against calls within the board for a near-term interest rate hike, arguing on Thursday that moving prematurely could hurt growth and push down underlying inflation.
Asada, who dissented on the BOJ’s decisions to raise interest rates in June and September, said pushing borrowing costs higher could weigh on growth and underlying inflation, particularly given lacklustre consumption.
“I believe recent price increases have not necessarily been driven by demand factors,” Asada said in a speech to business leaders in the southern city of Nagasaki.
“In this sense, I consider it necessary for the Bank to give due consideration to the pace of any policy rate hikes,” he said, stressing the need to avoid cooling growth by moving too quickly on rates.
The comments highlight a rift within the policy-setting board that may complicate Governor Kazuo Ueda’s job in garnering consensus on the pace of future rate hikes.
While the BOJ kept rates steady at 1.25% at a review last month, a summary of opinions at the meeting showed some policymakers favoured hiking borrowing costs at a faster pace to combat mounting price pressures.
Analysts polled by Reuters expect the BOJ to raise its policy rate to 1.5% in December and stick to a quarterly pace of hikes. Most of them view the terminal rate as 1.75% or 2%.
ROLE OF REFLATIONISM OVER
In a news briefing following the speech, Asada said various indicators suggested that underlying inflation had roughly reached the BOJ’s 2% target.
But he said the risk of rate hikes cooling growth will become larger now that the BOJ’s policy rate has entered the 1.1%-2.5% range its staff estimate as being Japan’s neutral rate, a range where it is seen neither cooling nor overheating growth.
“Japan’s neutral rate likely lies within that range. But my view is that it’s not necessarily that high,” Asada said.
“It’s not that I’m against raising rates altogether. I might see the need to hike rates slowly in the future,” he said. “But if we were to hike, we need to be cautious about the pace.”
Asada and fellow policy dove Ayano Sato, who also voted against the September rate rise, joined the policy board this year. They were both nominated by Prime Minister Sanae Takaichi, who in the past has warned against the BOJ’s rate-hike plans.
A former academic, Asada is seen as belonging to a camp of reflationists who favour loose fiscal and monetary policy.
Asada said he still believed the massive stimulus programme deployed by the BOJ in 2013 was appropriate at the time to pull Japan out of prolonged deflation and economic stagnation.
But he said reflationist policies may no longer have a role to play, given their success in ending deflation.
“Japan has already achieved inflation of roughly 2%. There’s not much meaning to pushing up prices further. Japan is now experiencing inflation, not deflation, and therefore in a new phase,” Asada said when asked about his past remarks advocating reflationist policies.
Under Ueda, the BOJ exited its massive stimulus in 2024 and has gradually raised interest rates since then.
With stubbornly high energy costs and rising import prices from a weak yen adding to inflationary pressures, the BOJ raised rates in September after delivering a hike in June — a shorter interval between moves than the roughly twice-a-year hikes in 2024 and 2025.
The BOJ kept policy steady at its review in October but declared victory in its 14-year battle to hit its price target and flagged upside price risks, reinforcing its hawkish bias.
(Reporting by Leika Kihara; Editing by Muralikumar Anantharaman and John Mair)
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