Bank of Japan board member Junko Koeda urges rate hikes amid inflation risk

Bank of Japan board member Junko Koeda said the central bank should raise interest rates at an “appropriate pace” as underlying inflation could exceed the 2% target, citing the ongoing conflict in the Middle East and its impact on oil prices. She warned that prolonged negative real rates risk misallocation of capital and urged the BOJ to consider gradual tightening while weighing trade‑offs for the economy.

Koeda highlighted Japan’s positive output gap, solid economic indicators and strong global IT demand, suggesting the economy can absorb modest tightening without a major downturn. Her comments echo Governor Kazuo Ueda’s stance that achieving a sustainable 2% inflation rate will require careful policy adjustment, marking a shift from the BOJ’s historic focus on deflation to a more proactive role in combating inflation.