It is appropriate for the Bank of Japan to raise interest rates and adjust the degree of monetary accommodation to achieve price stability sustainably, the Summary of Opinions from its December meeting showed. Policymakers noted that Japan could sustain a virtuous cycle in which wages and prices rise moderately, reinforcing confidence in the baseline outlook for growth and inflation. Solid corporate profits were seen as supportive of wage hikes, while inflationary pressures are expected to persist under current financial conditions, particularly with currency effects. Some board members warned that delaying action until the next meeting would pose “considerable risk,” as real interest rates remain far below equilibrium. Prolonged deviation, they cautioned, could distort resource allocation and undermine growth. With conditions viewed as excessively loose relative to fundamentals, some argued for a 0.25% hike, stressing Japan’s real policy rate is “by far the lowest globally.”
