Koeda delivered her message in Kumamoto, a region still recovering from a powerful earthquake in July, where she addressed local leaders on Thursday morning. Her central point was that the central bank should not let caution hold back further increases while price risks tilt upward and financial conditions stay loose. The remarks were read as a sign the Bank of Japan remains on course to lift borrowing costs again in the coming months after quickening the pace of normalization, Bloomberg reported.
The speech lands in the middle of a shift in how the central bank frames its job. Through most of the past decade the BOJ was trying to push inflation up toward its target; this year Governor Kazuo Ueda has described a new phase in which the aim is to stop underlying inflation from overshooting, as Ueda has made clear. Koeda voted with the majority for September's increase.
Her argument rests partly on how far rates sit below neutral. With the policy rate at around 1.25% after September's move, she described the neutral level, where policy neither stimulates nor restrains the economy, as likely considerably higher, according to an account of the speech. The case for moving rates, in her view, is built on breadth: most items in the consumer price index are now rising from a year earlier, wages are climbing steadily, and underlying inflation looks increasingly anchored near the 2% target. Oil shocks tied to the Middle East, and a yen that has weakened rather than strengthened during those episodes, have added to import costs, she said. She also stressed that shrinking the bank's balance sheet should continue.
The next decision comes on Oct. 30, when the board will also publish fresh quarterly forecasts. People familiar with the discussions have indicated officials are disinclined to move at consecutive meetings absent an abrupt rise in inflation risks, with December seen as the earliest likely window, though the outcome could change up to the last minute. Ueda is scheduled to address credit unions on Friday, and markets will parse his remarks alongside Koeda's for any gap between them.