BOJ should not be overly cautious in raising rates, board member Koeda says

Bank of Japan board member Junko Koeda argued that the central bank should not be overly cautious about raising interest rates, as there are significant upside risks to inflation. She noted that Japan's financial conditions remain accommodative even after past rate hikes, with no indications that higher borrowing costs are negatively impacting households and businesses.

Rising prices across a wide array of consumer goods suggest that underlying inflation is settling around the Bank of Japan's 2 percent target, Koeda said. Additionally, steady wage growth indicates that Japan is making more sustainable progress toward sustained inflation. The BOJ should adjust interest rates in a timely manner while monitoring the economic and price situation and considering the estimated range of the neutral interest rate, Koeda stated during a speech to business leaders in Kumamoto, southern Japan.

The Bank of Japan increased its key rate to a 31-year high last month and signaled a shift towards preventing underlying inflation from surpassing its target, raising expectations of further policy tightening. Although the BOJ may refrain from raising rates in October, it is expected to issue cautious signals that would strengthen prevailing market forecasts for a December hike, according to sources speaking to Reuters.