Reflationist ex-BOJ policymaker calls end to low rates, big spending
EWJ•Former Bank of Japan board member Asahi Noguchi said Japan no longer needs expansionary fiscal and monetary policies and predicted the BOJ will raise its policy rate to 1.5% in December from 1.25%. He said rates could eventually reach 1.75% or 2% as price pressures mount.
1. Policy shift
Noguchi said underlying inflation is near the BOJ’s 2% target and wages are becoming consistent with that level, making demand-boosting policies too risky. He said Japan no longer needs reflationary policies and warned that excessively loose fiscal policy could push up bond yields and dampen corporate investment.
2. Rate outlook
Noguchi said receding prospects of a U.S. rate hike in October would likely allow the BOJ to hold rates this month, but forecast a December increase to 1.5% from 1.25%. He said the policy rate could eventually rise to 1.75% or 2%, depending on U.S. rates and developments in the Middle East conflict; he described 2% as potentially risky for households and firms.
3. Yen and inflation
Noguchi said the BOJ had little choice but to speed up rate hikes to avoid unwelcome yen falls. He said the central bank was concerned about a yen slide below 160 against the dollar triggering another wave of food inflation.
