BoJ Board Member Masu says one‑ to two‑year real interest rates remain negative and need to keep price trend from going above 2%, adds underlying inflation is still below 2% but quite close to that level

Says: **BoJ is expected to continue raising interest rates given current accommodative financial conditions. Higher fuel and chemical goods prices could be one-off shock but may have broader impact on prices via distribution costs.** Most important thing is to avoid underlying inflation from overshooting sharply from 2% Pace and timing of rate hikes will be determined by the likelihood of achieving baseline projections and associated risks, while watching oil price moves, AI demand and FX fluctuations. Most important priority is to prevent underlying inflation from sharply overshooting 2%. Higher fuel and chemical goods prices could prove a one-off shock, but may have a broader effect on prices through distribution costs. Concern that rising costs from the Middle East conflict could push up overall prices on a sustained basis. Government measures to cushion the rising cost of living could actually boost demand and lift inflation. Recent 7% surge in producer prices warrants attention, as higher producer costs could feed into consumer inflation more than in the past. Food price increases are likely to re-accelerate and could be key to the longer-term inflation outlook. Weak yen is having a larger impact on inflation than in the past and warrants attention. Japan is no longer in deflation, so real interest rates should be moved out of negative territory as soon as possible. BoJ policy rate is approaching the estimated neutral-rate range, so prices, employment and financial conditions must be monitored carefully. With Japan’s financial conditions still accommodative, BoJ could be forced to raise rates rapidly if inflation accelerates. BoJ must raise rates further and move its policy rate within the estimated neutral-rate range so it can conduct policy flexibly. No sign that recent rate hikes are denting corporate demand for funds, with concern that corporate investment could be overheating.