By Leika Kihara
TOKYO (Reuters) – Bank of Japan board member Seiji Adachi said on Wednesday the central bank must raise interest rates at a “very moderate” pace and avoid hiking prematurely, given uncertainties over the global economic outlook and domestic wage developments.
The yen may keep rising as the U.S. Federal Reserve enters a full-fledged rate cut cycle, which would push down Japanese import costs and weigh on consumer inflation, he said.
There is also uncertainty whether Japanese firms will keep raising wages next year due to lingering global risks such as uncertainty over the outcome of U.S. presidential elections, as well as slowing Chinese and U.S. demand.
“Given high uncertainty surrounding global developments, there is significant uncertainty over next year’s wage developments in Japan. We must carefully monitor the situation,” Adachi said in a speech, signalling the need to spend time scrutinising such risks before raising rates again.
Adachi said Japan’s economy has already met the conditions for normalising ultra-loose monetary policy. But the BOJ must proceed cautiously and avoid any “drastic policy change” that could push the country back to deflation, he added.
“Until underlying inflation sustainably and stably achieves our 2% target, we must basically maintain an accommodative financial environment and raise our policy rate at a very moderate pace,” Adachi said.