BOJ Must Patiently Maintain Loose Policy, Says Board Member Noguchi – Reuters

By Leika Kihara

NAGASAKI, Japan – Asahi Noguchi, a board member of the Bank of Japan (BOJ), emphasized on Thursday the need for the central bank to maintain a loose monetary policy for the time being. He noted that it will take time to shift the public perception that prices are unlikely to rise significantly in the future.

Noguchi’s remarks come shortly after Japan’s new Prime Minister stated that the economy is not yet prepared for additional interest rate increases, a statement that resulted in a decline of the yen.

With inflation surpassing the BOJ’s 2% target for over two years and nominal wages on the rise, Japanese companies are increasingly open to passing along higher costs through price increases, Noguchi explained. However, he observed that real consumption remains sluggish, suggesting that households still operate under the expectation that prices will not rise substantially, a mindset shaped by decades of deflation and stagnant wage growth. Notably, Noguchi had opposed the BOJ’s decision to raise rates in July.

"It will take considerable time for such sentiment to change, and for the public to adopt an outlook consistent with the BOJ’s 2% inflation target," Noguchi stated during a speech to business leaders in Nagasaki. "Until then, what is most important is for the BOJ to patiently maintain an accommodative monetary environment."

These comments followed a meeting between BOJ Governor Kazuo Ueda and Prime Minister Shigeru Ishiba, who later indicated that Japan is not yet ready for further rate hikes.

As a result of these developments, the dollar rose 0.3%, reaching a one-month high of 146.84 yen, bolstered by decreasing expectations for a near-term rate hike by the BOJ. A majority of economists surveyed recently had anticipated another rate increase by the end of the year.

In the second quarter, Japan’s economy grew at an annualized rate of 2.9%, supported by steady wage increases that bolstered consumer spending. While capital expenditure continues to rise, the outlook for the export-dependent country is clouded by soft demand from China and slowing growth in the U.S.

Noguchi noted that consumption is projected to rise further as increasing wages boost household income. The desire for sustained wage growth is also becoming a significant factor driving service inflation, as companies prepare for higher labor costs.

"The BOJ will gradually adjust the level of monetary support while closely monitoring whether inflation stabilizes around 2% alongside wage growth," Noguchi remarked.

In March, the BOJ ended its negative interest rate policy and raised short-term borrowing costs to 0.25% in July, believing that Japan was making progress towards maintaining a 2% inflation rate.

Ueda had to retract earlier statements made in July, when the BOJ raised rates, indicating ongoing increases in borrowing costs after the hawkish comments resulted in market volatility. Following his meeting with Ishiba, Ueda reiterated that the BOJ would be cautious in determining whether further interest rate hikes were appropriate.