Bank of Japan (BOJ) board member Hajime Takata indicated on Thursday that the central bank may need to further increase interest rates if it confirms that companies will persist in raising spending and wages. In a speech delivered to business leaders in Kanazawa, Takata highlighted the ongoing volatility in the stock and currency markets since early August, underscoring the need for vigilant scrutiny of market developments and their repercussions.
Takata stated, “If inflation aligns with forecasts, and companies continue to enhance spending, wages, and transfer costs through price hikes, we may need to adjust the level of monetary easing further.” This comes in the wake of the BOJ’s decision to end negative interest rates in March and raise short-term rates to 0.25 per cent in July, reflecting the bank’s view that the economy is progressing towards its 2 per cent inflation target.
Despite a shift towards rate cuts by U.S. and European central banks, Takata cautioned that the effects of their previous aggressive monetary policies could still impact Japan’s economy with a delay. He also pointed out that differing monetary policies between the BOJ and other central banks might contribute to market turbulence.
BOJ Governor Kazuo Ueda has previously signalled that the bank stands ready to raise interest rates further if inflation remains around 2 per cent in the coming years, provided it is accompanied by substantial wage gains, as currently projected by the board.
For the time being, Takata emphasised the importance of closely monitoring both domestic and international economic developments due to the potential market turbulence arising from varying central bank policies.
Source: Reuters
