BoJ’s Masu said further rate hikes are needed to complete policy normalization.

BoJ board member Kazuyuki Masu said Japan has entered an inflation phase as policy normalization moves forward.

Japan has shifted into an inflationary phase.

• Must remain vigilant as yen weakness–driven inflation lifts overall and underlying prices.
• BOJ is closely watching FX moves and their impact on the economy and prices.
• BOJ is expected to keep raising rates if economic and price forecasts are realized.
• Underlying inflation is still below 2% but is approaching that level.
• Deflationary practices are being eliminated as Japan enters an inflationary phase.
• Rates must be raised in a timely and appropriate manner to prevent underlying inflation from exceeding 2%.
• Policy must remain cautious to avoid excessive hikes that could derail the nascent cycle of rising inflation and wages.
• BOJ will closely assess market conditions and the future pace of bond purchases.
• Particular attention is on processed food prices excluding rice as a key inflation indicator.
• Inflation dynamics must be assessed to determine whether they are driven by supply alone or both supply and demand.
• Japan’s real interest rate remains deeply negative.
• The neutral rate is only one reference point for policy decisions.
• As policy rates approach neutral, BOJ must more carefully examine prices, employment, and financial markets.
• Further rate hikes are needed to complete policy normalization.

Market reaction

At the time of writing, USD/JPY is trading 0.28% lower on the day at 156.60.

Sources: Lallalit Srijandorn