Bank of Japan board member Asahi Noguchi has taken a cautious stance amid increasing market speculation about a possible rate hike in December. Rather than reinforcing expectations of tightening, Noguchi emphasised the need for policy adjustments to be made at the appropriate time.

Noguchi acknowledged that the Bank of Japan could resume raising interest rates as risks from U.S. tariffs subside. However, he stressed that any tightening should be implemented in a measured, gradual manner. He cautioned against keeping real interest rates too low for an extended period, warning this could weaken the yen excessively and push inflation beyond target levels. This risk grows as Japan approaches full employment and the benefits of a weaker currency begin to fade.

He highlighted the importance of exchange-rate movements as a key transmission channel for monetary policy. Recent volatility in the yen, he pointed out, illustrates the economic costs of prolonged monetary easing.

With inflation remaining above 2% for over three years and wage pressures building, Noguchi identified sustained real wage growth of around 1% as crucial to anchoring inflation at the Bank’s target. Such gains are expected to materialise around fiscal 2026-27. Until then, Noguchi urged the Bank of Japan to carefully balance its approach—avoiding moves that are too quick, which could stifle wage growth, or too slow, which could destabilise price levels.

The Bank of Japan is scheduled to hold its next policy meeting on 18-19 December, with markets assigning a slim majority probability to a rate increase at that time.

Original Source: Eamonn Sheridan of investinglive.com