Japan may need faster rate increases if inflation accelerates
Bank of Japan member Kazuyuki Masu said the 1.0 per cent policy rate should continue to rise. He estimated the neutral-rate range at 1.1 per cent to 2.5 per cent and warned that rapid increases could become unavoidable if inflation accelerates. Reuters said the speech strengthened the chance of an increase at the following week's meeting, while noting that Masu did not signal an urgent need for a large 50-basis-point move.
Economics & Markets··Midday
Masu says rate increases will continue
Bank of Japan Policy Board member Kazuyuki Masu said in a speech in Fukui that the Bank would continue raising its policy rate, currently 1.0 per cent. According to the Bank's published speech, financial conditions in Japan remain accommodative. Masu warned of a risk that rapid rate increases could become unavoidable if inflation accelerates. A Reuters report published by MarketScreener covered the same speech and said Masu's warning about price risks strengthened the chance of an increase at the following week's meeting. Both sources report Masu's assessment; the policy board will make the rate decision.[1], [2]
Neutral-rate range is estimated at 1.1 to 2.5 per cent
Masu estimated the neutral interest-rate range at 1.1 per cent to 2.5 per cent. He argued that the policy rate should be raised until it sits firmly within that range, preserving flexibility for the Bank to move in either direction. The Bank has implemented five policy-rate increases since March 2024. Reuters reported that Masu also said real rates should be pulled out of negative territory as soon as possible. At the same time, he said recent data did not show a large, rapid inflation overshoot, indicating no urgent need for a larger-than-expected increase of 50 basis points at the next meeting.[1], [2]
Freight costs point to price pressure
In the published speech, Masu said the motor-freight component of the services producer price index rose by almost 6 per cent from a year earlier in July. Although gasoline prices had fallen from a year earlier after subsidies returned in mid-March 2026, he said the increase could indicate that personnel expenses were passing through to prices. He also noted that slightly more than 70 per cent of Japan's recent crude-oil imports passed through the Strait of Hormuz. Reuters highlighted Masu's assessment that underlying inflation was very close to the 2 per cent target. These indicators form part of the policy rationale; none alone determines the size of a decision.[1], [2]
