Dovish BOJ policymaker Asada pushes back against early rate hike calls

Nagasaki, Japan, November 12 - Dovish Bank of Japan policymaker Toichiro Asada has responded to calls for an early interest rate hike, cautioning that doing so prematurely could impede growth and curb underlying inflation. Asada, who opposed the BOJ's rate hikes in June and September, pointed out that the economy is expanding moderately, and inflation is hovering around the 2 percent target set by the central bank.

However, he noted that recent data indicated weak consumption, raising concerns about the momentum of the economy. Asada's comments underscore a division within the BOJ's policy-setting board, which could prove challenging for Governor Kazuo Ueda in reaching a consensus on future rate hikes. "I believe the recent price increases have not necessarily been driven by demand factors," Asada stated during a speech to business leaders in Nagasaki.

He emphasized the importance of the Bank considering the pace of policy rate hikes, stressing the need to prevent growth from cooling down by raising rates too quickly. While the BOJ held rates steady in its last review, opinions at the meeting revealed some policymakers favoring more frequent hikes to address rising price pressures.

Analysts forecast the BOJ to raise its policy rate to 1.5 percent in December and maintain a quarterly hiking pace. Most forecasts see the terminal rate between 1.75 percent and 2 percent. Asada warned that the risk of rate hikes cooling growth is higher now that the BOJ's policy rate has entered the 1.1 percent-2.5 percent range, its staff estimate as the neutral rate.

He noted that as the policy rate rises, the degree of monetary support is gradually decreasing, and the impact of earlier rate hikes will likely manifest with a lag of at least a year. Asada and fellow policy dove Ayano Sato, who also dissented on the September rate rise, joined the policy board this year, nominated by Prime Minister Sanae Takaichi, who previously cautioned against the BOJ's rate-hike plans.

High energy costs and rising import prices due to a weak yen have added to inflationary pressures, prompting the BOJ to raise rates in September and June, a shorter interval than the usual two moves per year seen in 2024 and 2025. The BOJ maintained a steady policy rate at its October review but declared its 14-year fight to hit its price target a success and highlighted upside price risks, reinforcing its hawkish stance.