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BoJ board member Masu warns rapid tightening risk if normalization stalls

Masu said Japan’s 1.0% policy rate is still below its estimated neutral range of 1.1% to 2.5%, and that negative short term real rates should be addressed soon.

Reported · Written up by our desk · Central Banks

Bank of Japan Policy Board member Kazuyuki Masu said further monetary normalization is needed to avoid a scenario where the central bank is forced into much faster tightening later. Speaking to local leaders in Fukui, he argued that tightening should proceed gradually while the BoJ still has policy flexibility to adjust as conditions change, rather than holding rates too accommodative for too long.

Masu said current financial conditions remain accommodative and that the BoJ risks being forced into a rapid policy interest rate hike if inflation accelerates. He pointed to inflation dynamics he expects to be close to the BoJ’s objective before recent external pressures fully feed through.

He described underlying inflation as still below 2% but “very close” to the 2% target, with firms increasingly passing higher costs into selling prices. He also cited Iran conflict related cost pressures, yen depreciation effects on prices, and demand tied to AI that is lifting prices for semiconductors, copper, and power generation equipment.

Masu added that domestic factors support continued normalization, noting scheduled earnings are rising about 3% and real wages have turned positive. He said Japan has exited deflation but that short term real interest rates remain negative, calling the negative real rate situation something the BoJ should address as soon as possible.

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