Bank of Japan board member backs possible rate hike on inflation risks

A Bank of Japan board member has signaled growing support for raising interest rates, citing concerns that inflation may exceed the central bank's target and warning of the risks of keeping borrowing costs too low for too long. Junko Koeda made the remarks in a speech to business leaders in Fukuoka on Thursday.

Koeda stated that underlying inflation is already around the bank's longstanding 2% target, with companies passing on costs at a faster pace than in the past. She said she sees a possibility that inflation may exceed that target looking ahead, partly due to the situation in the Middle East, which could keep energy prices high for a prolonged period. Recent slight rises in long-term inflation expectations also warrant attention, she added.

Given these conditions, Koeda argued it is reasonable for the central bank to raise its policy interest rate at an appropriate pace to address high inflation, while also considering the trade-offs for the economy. She emphasized the need to be mindful of the negative side-effects of keeping real interest rates—interest rates adjusted for inflation—well below levels deemed neutral. Such a policy could cause unintended distortions in...