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BOJ Rate Hike "Premature:" Former BOJ Deputy Governor Wakatabe

Waseda University Professor Cites Drop in "Underlying Inflation" to 1.9%

Masazumi Wakatabe does not agree with the Bank of Japan’s decision to hike it’s key rate at this week’s meeting. While he was not surprised that the BOJ took this step after media reports right before the meeting signaled the move was possible, he is quite clear that it he thinks it was the wrong move to make. “I must say…I don’t think this is appropriate.”

”I think it’s kind of too soon, so too fast,” he says in our interview. “I think it’s too premature for…tightening at this moment.”

Wakatabe’s views carry the extra weight given to a former BOJ deputy governor who worked alongside Haruhiko Kuroda from 2018 to 2023. Wakatabe became another important voice that called, as the former BOJ governor did, for maintaining extraordinary monetary stimulus until it was 100% clear that Japan’s economy would stay sustainably above its two percent target.

Even with the main indexes of Japanese inflation staying at or above two percent,
Wakatabe is concerned that Governor Kazuo Ueda at his post-meeting press conference made it clear the BOJ is not planning their rate hike to be one and done.

Ueda “actually suggested that this is not the end point of his interest rate hikes, Wakatabe says. “He’s conveyed that he’s ready to raise interest rates further down the road.”

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While Wakatabe is not on board with the BOJ’s move to tighten policy but it’s not stopping him from revising up his projection for BOJ rate hikes this year. “I think there’s high probability that the BOJ is going to hike this rate in October. One more hike…within the year cannot be excluded,” which would take the key rate to 50 basis points.”

When I ask him why is not on board, he starts with “underlying inflation,” what we call core inflation in the U.S., and Japan calls “core core” inflation, and is considered a secondary gauge. He says underlying inflation in has eased to 1.9%, and if you look at the latest Tokyo inflation numbers, it’s at 1.1%. ”If you care about.. underlying inflation that…is already coming down and even below 2%.

We covered a lot of ground in this conversation from the BOJ’s plan for reducing bond purchases, another form of monetary tightening, to the impact of rate hikes on Japan’s banks, to the important LDP elections in September and the surprising call of two top officials for the BOJ to hike rates, and what this portends for the path of BOJ policy, and much more.

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So sit back and relax and see what Masazumi-san has to say. Agree with the former BOJ deputy governor or not, he provides another perspective for all of us as we watch what looks to be another landmark year for Japan’s central bank.

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Kathleen Hays Presents: Central Bank Central
Kathleen Hays Presents: Central Bank Central Podcast
Timely, in depth analysis of Federal Reserve policy and players, and of its central bank counterparts around the world that are driving global markets.