BOJ may be forced to hike rates rapidly if inflation accelerates, board member Masu says

Bank of Japan member Kazuyuki Masu warned on Thursday that the central bank may be compelled to rapidly increase interest rates if inflation surges, as Japan's financial conditions remain accommodative. Masu pointed to a recent surge in producer prices, which could exacerbate consumer inflation, citing factors such as companies passing on costs from the Middle East conflict and the weakened yen.

He also highlighted the potential impact of rising fuel and chemical prices due to the war in Iran, which could lead to increased transportation costs and higher food prices, with lasting effects on overall prices. Masu emphasized that while underlying inflation has not yet reached the 2% target set by the BOJ, it is very close to it, and he is convinced that further rate hikes are necessary to ensure the central bank's flexibility in adjusting rates based on economic conditions.

The BOJ is anticipated to raise interest rates to 1.25% on September 18 and then to 1.75% in the second quarter of 2027, according to a Reuters poll, as concerns over rising price pressures and a weaker yen persist.