BOJ's Koeda Backs More Rate Hikes as Underlying Inflation Hits 2%
Updated
Updated · investinglive.com · May 21
BOJ's Koeda Backs More Rate Hikes as Underlying Inflation Hits 2%
2 articles · Updated · investinglive.com · May 21
Koeda said Japan's underlying inflation is already around 2% and the BOJ should keep raising rates at an appropriate pace, making the June meeting a sharper focus ahead of April CPI.
Middle East tensions have increased the risk that high crude oil prices persist, he said, creating a chance inflation rises above 2% and spreads across a wider range of goods and services.
Long-term inflation expectations have already edged higher in both surveys and markets, reinforcing his argument that holding rates steady would push short-term real rates further into negative territory.
That, Koeda warned, could widen the gap with the natural rate and distort future resource allocation, though he said normalization still depends on the output gap, the natural rate and whether the economy avoids a major downturn.
Can Bank of Japan rate hikes save the yen without crushing already squeezed households?
With oil shocks driving inflation, is the Bank of Japan fighting the wrong war with interest rates?
Japan at a Crossroads: BoJ’s 2026 Rate Hike Dilemma Amid Energy Shocks, Inflation, and Global Pressures
Overview
The Bank of Japan is under growing pressure to shift away from its ultra-loose monetary policy, especially after Junko Koeda highlighted the risks of keeping negative real interest rates amid high oil prices. Koeda warned that such rates could distort resource allocation and called for greater scrutiny if the economy remains stable. Her remarks are seen as a signal to prepare markets for possible rate hikes, as recent currency interventions have been ineffective without tighter policy. This debate is intensifying within the BoJ, with some board members now considering raising rates as early as June 2026, marking a potential turning point for Japan’s monetary strategy.