Bank of Japan Policy Board member ASADA Toichiro said further rate increases would likely follow a shift toward demand-led inflation, with wages and prices gathering strength in tandem. His remarks put the focus on whether Japan’s pay gains are translating into spending that can sustain price growth. ASADA said private consumption remained nearly flat.
The consumer price index (CPI) excluding fresh food was about 2% higher than a year earlier, despite government energy-cost relief. A measure excluding fresh food and energy was about 2.5%, while a separate gauge excluding fresh food and institutional factors, including energy relief and free education, was between 3% and 3.5%, he said. The differing readings reflect the influence of government relief and free-education policies on some measures.
The BOJ’s October outlook projected inflation moving above 2% in the second half of fiscal 2026, with energy prices, global AI-related demand and yen depreciation among the influences. It expected inflation to ease toward 2% later in the forecast period. ASADA said price pressures could intensify, but another increase risked slowing activity and eventually weighing on underlying inflation.
Rate increases in June and September brought the BOJ’s policy rate to 1.25% in September. It was the first time in about three decades the rate had reached that level. ASADA placed it within the BOJ’s broad neutral-rate estimate, which runs from slightly above 1% to 2.5%, and said additional hikes could have a greater effect on economic activity than earlier increases.
He said the full economic impact of rate changes may take a year or longer to show, and called for monitoring company financing and household loans. ASADA opposed the June and September increases and favored holding rates steady in July and October, as detailed in his earlier comments on the pace of BOJ tightening. The BOJ’s next policy meeting is scheduled for Dec. 17-18.