BoJ board member advocates slow approach to interest rate hikes – BNN Bloomberg

(Bloomberg) — Bank of Japan board member Seiji Adachi stressed the need for a gradual approach to raising the benchmark interest rate, in comments that will likely bolster market sentiment that officials will stick to their guns when they meet to set policy this month. .

“What we need to be careful about, in a process of gradually increasing rates, is to raise them extremely gradually while maintaining accommodative financial conditions” until the price trend reaches 2%, Adachi said in a speech to local business leaders in Kagawa. on the island of Shikoku, Japan.

Adachi, a noted board dove, was speaking two weeks before officials met to review the policy on Oct. 31, with economists widely expecting a suspension. Some pushed back their expectations for the BoJ’s next hike to January after Prime Minister Shigeru Ishiba expressed support for monetary easing on his first full day in office earlier this month.

Adachi’s emphasis on a gradual pace of tightening could spur market speculation that there will be no more rate hikes this year.

Friday’s data is expected to show that consumer inflation slowed to 2.3% in September. This would be the slowest pace since April, while still extending for several months at or above the BoJ’s 2% target at 30.

Even if economic data supports policy normalization, there is also a risk that too rapid a pace of rate hikes could send the economy back into deflation, Adachi said.

The yen briefly appreciated after Adachi said conditions were ripe for policy normalization, but that decision was later reversed when speculators unwound some long yen positions, according to Hideki Shibata, senior strategist at Tokai Tokyo Intelligence Lab Co.

The Japanese currency has weakened in recent weeks as prospects for a narrowing interest rate gap between the United States and Japan have dimmed somewhat. Still, Adachi flagged the risk that a strong yen could hamper the BoJ’s attempts to achieve sustained inflation after the Federal Reserve launched its easing cycle last month.

“It is possible that a correction in yen weakness will gain momentum,” Adachi said. “This could put downward pressure on inflation, particularly for goods.”

Adachi said it was difficult to determine where exactly the neutral rate for Japan should be. A board member said it should be at least 1%, indicating the bank has room to raise rates even as it seeks to maintain generally loose financial conditions.

“I think it’s OK to use the more conservative estimate” of about 1% at this point, Adachi said.

The central banks of industrialized countries are all moving towards neutral policies, with most of them lowering rates to this end. Dallas Fed President Lorie Logan stressed earlier this week that U.S. policymakers should take a gradual approach as they ease policies.

–With the help of Masahiro Hidaka.

(Updates with more comments from the speech)

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