Ex-BOJ policymaker Noguchi sees end to low rates, big spending

Key facts

• Former BOJ board member Asahi Noguchi believes Japan no longer needs expansionary fiscal and monetary policies.
• Noguchi projects the Bank of Japan will raise interest rates again in December.
• He stated that underlying inflation is near the BOJ's 2% target and wages are becoming embedded at levels consistent with 2% inflation.
• Noguchi suggested the BOJ is concerned about a yen slide below 160 versus the dollar.
• He indicated the BOJ may raise its policy rate to 1.5% from 1.25% in December.

Former Bank of Japan board member Asahi Noguchi told Reuters that Japan no longer needs expansionary fiscal and monetary policies, projecting another interest rate hike by the central bank in December. Noguchi, a reflationist academic who served at the BOJ until March, believes underlying inflation is near the central bank's 2% target and wages are becoming embedded at levels consistent with 2% inflation.

Noguchi stated that it would be too risky to implement policies that boost demand under current conditions. He noted that the BOJ has increased the pace of rate hikes due to energy shocks and rising import costs from a weak yen. He suggested that the BOJ is concerned about the yen falling below 160 against the dollar, which could trigger a fresh wave of food inflation.

While the BOJ might hold rates steady this month given receding prospects of a US rate hike in October, Noguchi sees a good chance of a rate increase to 1.5% from the current 1.25% in December. He also mentioned that the BOJ could eventually lift its policy rate to 1.75% or even 2%, depending on the US Federal Reserve's actions and developments in the Middle East conflict.

Noguchi, now a professor at Senshu University, argued that excessively loose fiscal policy could push up bond yields and dampen corporate investment. He concluded that reflationary policies no longer have a role to play in Japan.