Former Bank of Japan Governor Kuroda predicts more rate hikes

The Bank of Japan (BOJ) is expected to continue raising interest rates over the coming years as inflation appears on track to sustainably reach its 2% target, according to former governor Haruhiko Kuroda. Info comes via Reuters reporting.

Kuroda highlighted that:

• Japan’s economy is projected to grow by over 1% annually, supported by rising real wages and consumer spending.
• The BOJ’s gradual approach to rate hikes reflects the positive wage-inflation cycle that keeps inflation stable at the 2% target.
• Higher borrowing costs are unlikely to significantly impact businesses or households due to corporate cash reserves and household savings. However, the government could face challenges funding Japan’s large public debt, which has grown to ¥1,100 trillion ($6.96 trillion).

He noted that:

• A return to bond yields of 2.7% (seen in 2000) could raise annual interest payments to ¥30 trillion, stressing the need for fiscal reform.
• Kuroda defended his earlier stimulus policies, introduced in 2013, for boosting inflation and growth, despite criticism over their side effects, such as impacts on commercial bank profits and market distortions.

Under current BOJ governor Kazuo Ueda, the central bank has pivoted from Kuroda’s ultra-loose policies, raising short-term interest rates to 0.25% in July 2024 and signaling readiness for further rate hikes if inflation remains durable.

This article was written by Eamonn Sheridan at www.forexlive.com.