Bank of Japan Policy Board Member Ichiro Asada recently indicated that he will not support further interest rate hikes unless signs of demand-driven inflation emerge within Japan. Nevertheless, he noted that the pace at which companies are passing costs on to consumers is accelerating, leaving room for a potential policy shift. In the June decision where the central bank raised interest rates to 1%, Asada was the sole member to vote against the move. This action reflects the current dilemma facing monetary policy: balancing political pressure to maintain easing against rising inflation driven by corporate cost pass-throughs.

As a board member nominated by Prime Minister Sanae Takaichi, Asada explained that his opposition to the June hike was primarily due to concerns that turmoil in the Middle East could impact Japan's economic output and employment. He emphasized that the key to supporting future rate hikes lies in whether the economic environment can stably achieve the central bank's 2% inflation target, and that this achievement must stem from endogenous forces such as wage increases and demand growth, conditions which are currently insufficient. However, he clarified that he is not consistently opposed to rate hikes, and future voting will be flexibly judged based on actual economic conditions at the time.

Although recent declines in crude oil prices have eased consumer inflation, the previous transmission of rising oil prices to commodity prices was relatively fast, potentially triggering broader price increases. Asada advocates that the central bank should respond flexibly to changes in the economic, price, and financial environment. The implementation of tightening policy should not follow a preset timetable but should be decided after fully assessing changes in domestic and international markets. Currently, the market generally expects the central bank to raise interest rates again in the fourth quarter of this year, with the inflation rate fluctuating around the 2% target for approximately four consecutive years.

Regarding the level of interest rates, Asada believes Japan's neutral interest rate is relatively low, though the specific value is difficult to determine. He clearly pointed out that the neutral interest rate itself should not become a policy target; the core of monetary policy should still center on price stability. Previous estimates by central bank staff show that Japan's nominal neutral interest rate is roughly in the range of 1.1% to 2.5%.