By playing Kihara
TOKYO (Reuters) - Bank of Japan must raise interest rates to at least 1% in the second half of the fiscal year starting in April.
He said the risk is being established as companies continue to increase raw material and labor costs, which requires raising policy rates for sheds to levels considered economically neutral.
Tamula said he believes Japan's neutral interest rate is at least 1%, adding that it must reach that level in the second half of fiscal 2025, when the results of annual wage negotiations could confirm a wide range of wages, including small companies.
"If short-term interest rates remain below neutral rates, this will further boost inflation," Tamula said in his speech.
The dollar briefly fell to a two-month low of 151.81 yen after Tamura's speech as the market continued to rise at the recent price of interest rate hikes.
The Japanese government's two-year bond (JGB) yield reached 0.765%, the highest level since October 2008. The market has about 50% chance of price increase in the rate in July.
Tamura, a former commercial banker who is regarded as the most hawkish member of the board, said inflation expectations between companies and households may have reached 2%.
But he said the shed had to be careful about the rate hike without any preconceived views, given the potential impact on the Japanese public who had long experienced ultra-low rates.
“Given that short-term interest rates should be 1% by the second half of fiscal 2025, I think the bank needs to raise interest rates in a timely and gradually in response to the possibility of increased reaching its price targets,” he said.
Tamula said central banks must carefully evaluate how the economy and prices respond to rate hikes in each tax rate, with no clear comment on how long the sheds can tighten their policies again.
"Even if the policy rate is raised to 0.75%, the real rate will still be significantly negative," he said.
"In other words, it's time for banks to impose a little bit of effort on monetary easing accelerator to slow down when necessary while avoiding severe brakes," Tamula said.
Boj raised interest rates to 0.5% last month, the highest since the global financial crisis in 2008, reflecting its firm belief that Japan is expected to sustainably achieve its 2% inflation target.
BOJ Governor Kazuo UEDA said he was ready to raise interest rates if the ongoing wage earnings are supported on a consumption basis and allow the company to continue to raise prices. But he avoided explaining the exact level of Japan's neutrality rate.
Tamura's remarks follow recent data, showing an increasing wage hike, including a steady rise in basic wages in December, according to a survey on Wednesday.
They also highlight how the sheds steadily get rid of the radical stimulus carried out by former Governor Haruhiko Kuroda, which focuses on reflexive boring growth.
In a review of the pros and cons of past currency easing steps released in December, the Shed said its previous huge stimulus had a positive impact on the economy as a whole.
But Tamura said the overall effect of saying the huge stimulation of shoes is positive, which is a "momentum". He also called for a review of whether these policies could cause side effects in the future, such as an excessive yen drop.
(Reported by Leika Kihara; Edited by Shri Navaratnam and Jacqueline Wong)