BOJ Policy Board Member Says Rate Normalization Needed to Prevent Future Distortions

(Seoul=Yonhap Infomax) Min Jae Lee – Junko Koeda, a member of the Bank of Japan (BOJ) Policy Board, indicated the need for a rate hike, diagnosing that Japan’s real interest rates remain at extremely low levels.

Speaking at a financial and economic roundtable in Niigata Prefecture on the 20th, Koeda addressed Japan’s economic and price conditions as well as monetary policy.

“Real interest rates are negative, and I believe the level is clearly low compared to other countries,” Koeda said.

She added, “Even if the degree of negative real interest rates narrows slightly, consumption and investment are likely to remain stimulated under such an accommodative environment.”

Koeda further emphasized, “Given that current real interest rates are extremely low, it is necessary to pursue rate normalization to return real rates to equilibrium, in order to avoid unintended distortions in the future.”

On inflation, Koeda stated, “There are many indicators, but taking into account the range of estimates and measurement errors, I believe the underlying inflation rate is moving toward around 2%.”

She noted, “Recently, prices have continued to outpace the underlying inflation rate,” but cautioned, “It is necessary to monitor whether the upward pressure on consumer prices from temporary supply-side factors will diminish as expected.”

Koeda also said, “We need to watch whether the rise in prices of food and other items will persist longer than expected, and to what extent such movements could affect inflation expectations.”

Regarding balance sheet normalization, she assessed that the BOJ is ensuring flexibility to adjust or suspend asset sales temporarily depending on market conditions, in consideration of market stability.

“While proceeding with normalization in a predictable and orderly manner, I believe it is necessary to discuss the appropriate size and composition of the balance sheet from both asset and liability perspectives,” Koeda said.

Koeda, who joined the BOJ earlier this year, is regarded as a hawkish member favoring monetary tightening.

mjlee@yna.co.kr

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