Key points

  • Former BOJ board member Asahi Noguchi told Reuters that Japan no longer needs broad fiscal and monetary stimulus aimed at lifting demand.
  • Noguchi expects the central bank to keep its rate at 1.25% in October and raise it to 1.5% in December, but that is his forecast rather than official guidance.
  • The BOJ says underlying inflation is approaching 2% and has retained a tightening bias, while warning that energy prices, the yen and global conditions remain important risks.

A former Bank of Japan policymaker who once argued for aggressive monetary easing now says the country’s reflation era has run its course. Asahi Noguchi, who served on the BOJ’s Policy Board until March, told Reuters that Japan no longer needs expansionary fiscal and monetary policies designed to raise demand. He expects the central bank to leave its benchmark rate at 1.25% in October before increasing it to 1.5% in December. The forecast is Noguchi’s view, not a commitment from the BOJ, but the shift in his position illustrates how persistent wage and price pressure is reshaping Japan’s policy debate.

A former dove changes his assessment

Noguchi joined the board in 2021 as a supporter of reflation and dissented when the BOJ ended negative interest rates in 2024. He later supported two rate increases. In the interview published October 5, he argued that underlying inflation is near the central bank’s 2% target and that wage growth is becoming consistent with that objective. Stimulating demand further could therefore add inflation pressure rather than repair deficient demand. He also warned that excessive government spending could lift bond yields and crowd out private investment.

Related reporting: Bank of Japan raises policy rate to 1.25% as yen weakens

The official rate is already at 1.25%

The BOJ raised the target for the uncollateralized overnight call rate to around 1.25% on September 18, with the change effective September 24. The decision passed by a 7-2 vote. In its official statement, the bank said underlying consumer inflation was approaching 2% and that it would continue adjusting monetary accommodation if economic activity, prices and financial conditions developed in line with its outlook. The statement did not set a date for the next move. It described current financial conditions as accommodative even after the increase.

The yen and energy prices narrow the room to wait

Noguchi said the BOJ is especially sensitive to the risk of the yen weakening beyond 160 per dollar because imported food and energy would become more expensive. Reuters reported the currency near 158. He argued that fading expectations for an immediate U.S. rate increase could give the BOJ room to pause in October, but projected another Japanese increase in December. The BOJ’s September statement separately identified foreign-exchange moves, the Middle East conflict and energy costs among the risks that could alter the timing and pace of policy changes.

Higher rates would reach households and markets

A move to 1.5% would increase short-term borrowing costs and could feed into variable-rate loans, corporate finance and bank pricing. Higher Japanese yields can also affect global portfolios because the yen has long been used as a relatively cheap funding currency. Noguchi said the rate could eventually reach 1.75% or even 2%, depending partly on U.S. policy and geopolitical developments, but cautioned that 2% could shock households and companies accustomed to exceptionally low borrowing costs.

The next decision remains data-dependent

Japan’s Statistics Bureau reported that headline consumer prices were 1.9% higher in August than a year earlier. The BOJ’s September assessment put inflation excluding fresh food in a 1.5% to 2.0% range and projected it would move clearly above 2% later in fiscal 2026. Those figures support the case for normalization, but they do not remove the risks of weaker consumption, an external slowdown or volatile energy markets. The policy question is no longer whether Japan has left negative rates behind; it is how quickly officials can move without destabilizing borrowers, bonds or the yen.

Sources

AI-generated editorial image; not a photograph of the reported event. Prepared with AI assistance and source verification.