By 
Junko Nakagawa, a policymaker at the Bank of Japan (BOJ), has indicated that the central bank is prepared to continue raising interest rates if inflation progresses according to its forecasts. Her remarks suggest that last month’s market turbulence has not altered the BOJ’s steady approach toward tightening monetary policy.
Nakagawa, however, cautioned that the BOJ would need to consider the broader economic impact of any further rate hikes, particularly the effect on market conditions and prices.
Her comments bolstered the yen, which reached its highest level against the U.S. dollar this year. The dollar fell to 141.015 yen on Wednesday, a drop of about 1%, briefly dipping below 141 for the first time since January 2.
“Given that real interest rates remain very low, we will adjust the extent of monetary easing from the perspective of achieving our 2% inflation target sustainably and stably, provided our economic and price outlooks are met,” Nakagawa said during a speech to business leaders in northern Japan.
Nakagawa’s stance mirrors that of fellow BOJ policy board member Hajime Takata, who last week emphasized the need to stay on course for rate hikes while ensuring that volatile market conditions do not severely impact businesses.
While the BOJ is expected to keep interest rates unchanged at its next meeting on September 20, over half of the economists surveyed by Reuters last month predict further tightening by the end of the year.
In a historic policy shift, the BOJ ended its negative interest rate policy in March and raised its short-term policy rate target to 0.25% in July, marking a move away from a decade-long stimulus program. This rate hike, combined with weak U.S. jobs data in early August, helped strengthen the yen against the dollar and contributed to a global stock market decline.
Despite these developments, Nakagawa emphasized that Japan’s economic fundamentals remain strong. She noted that the BOJ must reflect on recent market reactions following its July policy change and carefully evaluate their effects on the broader economy.
Japan’s economy grew by an annualized 2.9% in the second quarter of this year, driven by steady wage growth, which supported consumer spending. However, challenges such as weak demand from China and slowing U.S. growth pose risks to the export-reliant nation. Core consumer inflation reached 2.7% in July, aligning with the BOJ’s outlook that the country is on track to meet its 2% inflation target, supported by solid wage increases.
Nakagawa also pointed out that global uncertainties pose potential risks to Japan’s economic outlook but expressed optimism that rising wages will continue to boost consumer spending, thereby accelerating inflation trends. She added that Japan’s tight labor market and ongoing increases in import prices could also contribute to upward pressure on inflation.
“Given the tight labor supply, there’s a possibility that wage growth could surpass expectations, so we must be mindful of the risk that inflation may exceed our target,” Nakagawa said.
Nakagawa, who previously served as chairperson of Nomura Asset Management, is viewed as a centrist in terms of monetary policy by financial markets.
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