One of the Bank of Japan's most hawkish policy board members, Naoki Tamura, has stated the central bank should raise interest rates every few months and accelerate the pace if faced with heightened inflation risks.
In a speech delivered Thursday at a meeting with local businesses in Japan's Hyogo prefecture, Tamura outlined his envisioned baseline path. "The baseline scenario I have in mind is to raise the policy rate by a quarter percentage point (25 basis points) every few months, moving toward a neutral interest rate level of 2%," he said.
Tamura is a well-known hawk on the central bank's policy board, frequently calling for rates to be raised to more normalised levels. While his remarks hint at the possibility of another rate hike arriving sooner than most BOJ watchers anticipate, they also suggest he is unlikely to push for a follow-up hike as soon as July, immediately after last week's increase, barring a looming danger of accelerating inflation.
"If the possibility of price upside risks materialising increases, I think it will be necessary not to hesitate to accelerate the pace of rate hikes by raising the frequency or the size of the hikes," Tamura stated. He pointed to factors such as conflict in the Middle East as carrying risks of pushing inflation higher.
A former executive at Sumitomo Mitsui Financial Group, Tamura has often been a dissenting voice calling for faster rate increases. At the BOJ's April meeting, Tamura, along with Hajime Takata and Junko Nakagawa, voted in favor of raising rates against the decision to maintain the status quo, adding a hawkish tint to the outcome.
At last Tuesday's meeting, Tamura voted with his colleagues to raise the policy rate to 1%, its highest level since 1995. The summary of opinions from that meeting, released earlier this week, showed some officials saw a need to raise rates again in the coming months.
BOJ Governor Kazuo Ueda reiterated on Wednesday the bank's stance to continue raising rates depending on economic and price conditions but offered no clear hints on the timing of the next move. According to a survey conducted after last week's BOJ meeting, slightly more than half of economists expect a hike in December, while 36% anticipate one in October.
Tamura said the central bank needs to raise rates to what he estimates is a neutral level of around 2%. The BOJ's estimate for the neutral interest rate—one that neither stimulates nor restrains economic activity—lies between 1.1% and 2.5%.
Prime Minister Sanae Takaichi is seen as a potential obstacle to higher borrowing costs, being known for her support of monetary stimulus. She and her government have stated multiple times that they expect the BOJ to consider government policy when making decisions.
"In my view, the bank's mission is to play the role of 'guardian of price stability' while maintaining sufficient communication with the government," Tamura said.
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