Bank of Japan board member releases hawkish signal, saying benchmark interest rates still need to be further increased.

A board member of the Bank of Japan emphasized the need for further rate hikes to complete the normalization process of monetary policy, a statement that may continue to raise market expectations of an early rate hike by the central bank. Bank of Japan board member Kazuyuki Masu said on Friday in a speech to local business leaders in Ehime Prefecture, western Japan, "I believe that in order for Japan to complete the normalization of monetary policy, we must continue to raise the policy interest rates." Masu stated that raising interest rates would help end Japan's divergence from the monetary policies of other countries. Although he did not provide further explanation, the interest rate differential between Japan and other major economies has long been considered a core reason for the continued weakening of the yen; and the depreciation of the yen has raised import costs, creating drag on Japanese business operations and residents' livelihoods. This statement comes as another hint of a rate hike from the Bank of Japan following the hawkish shift signal released at the January monetary policy meeting, further lifting market expectations for a rate hike before April. After the rate hike by the Bank of Japan in December last year, most economists initially predicted that the next rate hike could come as early as June or July this year. Masu stated, "The key now is to stabilize the core inflation rate below 2% by timely and moderate rate hikes." He also pointed out that the magnitude of interest rate hikes should not be too high to avoid disrupting the gradual increase in wages and inflation. This is Masu's first public speech since joining the Bank of Japan's nine-member board of directors in July last year. At that time, he stated that his policy stance was between hawkish and dovish, marking a stark contrast to the hawkish signal released in this speech. After his speech, the yen exchange rate fluctuated slightly, with the US dollar remaining near 156.70 yen. Given the continued weakness of the yen, the Bank of Japan has expressed concerns multiple times recently about the exchange rate trends dragging down inflation. Formerly employed at the Japanese trading company Mitsubishi Corporation, Masu stated in his speech that the current trend of Japanese prices is "very close" to the Bank of Japan's 2% inflation target; and as the pressure of food inflation is expected to gradually ease, core inflation data will become a key factor for the Bank of Japan in formulating monetary policy. The latest data released by Japan on Friday shows that household food expenditure as a percentage in 2025 reached a historic high, significantly squeezing residents' discretionary spending power. Based on pricing in the overnight index swap market, traders currently estimate a 74% probability of the Bank of Japan hiking rates before April. The Bank of Japan's next monetary policy decision will be announced on March 19th.