BoJ's Koeda says BoJ needs to continue to raise the policy interest rate in response to developments in the economic activity and prices, as well as financial conditions

Says:

• Given the situation in the Middle East, she sees some possibility that underlying inflation may exceed 2% looking ahead.
• Thinks BoJ needs to continue examining the extent to which underlying inflation is anchored.
• Underlying inflation is already around 2%.
• Developments over the past month or two may have increased the likelihood of a risk scenario in which high crude oil prices persist.
• Considering such supply and demand contexts, prices could continue to increase across a wider range of items down the road.
• Reasonable for BoJ to raise the policy interest rate at an appropriate pace to address high inflation while also considering the trade-offs for the economy.
• If real interest rates continue to deviate markedly in a negative direction from the natural rate of interest, unintended distortions could arise in future resource allocation.
• Short-term real interest rates will fall further if BoJ does not change its policy interest rate in response to a rise in inflation or inflation expectations.
• BoJ’s decision on how to address issues surrounding policy normalisation will depend on factors such as the size of the output gap and the stability of the natural rate of interest.
• If the economy does not see a major downturn, more attention needs to be paid to the side effects of a further decline in real interest rates.
• BoJ should proceed steadily with normalising its balance sheet in a predictable manner, while ensuring flexibility.