Bank of Japan board member Toichiro Asada said further interest rate hikes should be carefully timed, warning that monetary tightening is having a growing impact on economic activity as policy rates move closer to neutral. He noted in a speech that private consumption remains subdued and recent price increases have not necessarily been driven by strong demand, raising the risk that additional tightening could weaken economic activity and push down underlying inflation. Although real wages have remained positive since early 2026, supported by three consecutive years of solid base-pay increases and higher bonuses, Asada stressed the need to assess actual consumer price developments before determining whether underlying inflation can sustainably exceed the 2% target. He added that further tightening would be more justified once wage growth translates into stronger demand-driven inflation.

The Bank of Japan should continue raising interest rates as underlying inflation has reached a level broadly consistent with its 2% price stability target, while financial conditions remain accommodative, according to the summary of opinions from its October policy meeting. Policymakers noted the central bank should consider its next rate hike when conditions allow, while assessing economic resilience, particularly underlying consumption trends amid Japan’s aging and declining population. Some members argued that the BoJ should accelerate the pace of monetary tightening and bring rates closer to neutral, noting that firms have become more resilient to higher borrowing costs and the effects of previous hikes have yet to fully materialize. However, others urged a cautious approach, recommending that financial conditions be monitored for several months after each increase. The board kept rates unchanged at the meeting to assess the cumulative impact of previous hikes.

It was appropriate for the Bank of Japan to continue raising interest rates and adjust the degree of monetary accommodation in response to developments in the economy, prices, and financial conditions, according to its September meeting minutes. Members agreed that the timing and pace of further adjustments should be determined by assessing the likelihood of achieving the central bank’s baseline economic and inflation outlook, while monitoring risks such as the impact of the situation in the Middle East, expanding AI-related demand, and forex movements. They also stressed the growing importance of stabilising underlying CPI inflation around the 2% target to prevent an upward deviation that could hurt the economy. One member noted that monetary policy had entered a new phase, shifting from encouraging higher underlying inflation toward ensuring price stability through flexible responses to domestic and overseas economic developments, including exchange-rate-driven price pressures.