Tokyo – In an interview with Reuters, former Bank of Japan (BOJ) board member and professor Asahi Noguchi argued that Japan no longer needs the expansionary fiscal and monetary policies that have driven low interest rates for years. He said the country’s underlying inflation is close to the BOJ’s 2% goal and wages are beginning to reflect that level, making additional demand‑boosting measures too risky.
Shift away from reflationism
Noguchi, who served on the BOJ board until March 2026, described the current environment as a “reflationist” era that is ending. He warned that continuing to keep rates ultra‑low could invite a further slide in the yen, especially as other central banks move into a rate‑hike mode amid global inflation pressures.
“If inflation is near the 2% target and wages are becoming embedded at levels consistent with that target, it would be too risky to implement policies that boost demand,” Noguchi said.
BOJ’s recent rate‑hike path
The BOJ has already accelerated its tightening cycle, raising rates in June and September after an energy shock from the Iran‑related war pushed import costs higher. While the bank hoped to proceed cautiously to avoid a domestic downturn, Noguchi said it had little choice but to act decisively to prevent a sharp yen decline.
He noted that a yen slide below ¥160 per dollar could trigger a fresh wave of food inflation, a scenario the BOJ is keen to avoid.
Future rate outlook
Noguchi expects the BOJ to raise its policy rate to 1.5% in December, up from the current 1.25%, and sees the possibility of further hikes to 1.75% or even 2% depending on U.S. policy moves and developments in the Middle East.
He cautioned that a jump to 2% could shock households and firms accustomed to ultra‑low borrowing costs, but argued that market forces will limit the bank’s ability to move slowly.
Fiscal policy considerations
With Japan’s output gap now positive, Noguchi warned that excessive government spending could crowd out private investment and push up bond yields, dampening corporate investment. He cited Premier Sanae Takaichi’s large spending plans as a factor contributing to recent sell‑offs in the yen and Japanese government bonds.
“Japan doesn’t need policies to boost demand as expansionary fiscal policy would crowd out private investment, while too‑low interest rates would cause yen falls,” Noguchi said.
Background on Noguchi’s stance
Noguchi joined the BOJ board in 2021 as a strong advocate of aggressive monetary easing. He dissented when the bank ended negative rates in 2024 and when it raised rates to 0.25% that year, but voted for two subsequent hikes.
Now a professor at Senshu University, he argues that reflationary policies have outlived their usefulness and that the BOJ must focus on price stability rather than demand stimulation.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
