By Leika Kihara
TOKYO, July 2 (Reuters) – The Bank of Japan should continue to raise interest rates at a moderate pace to rectify excessive yen declines, Toshihiro Nagahama, a government panel member known as an economic aide to dovish Prime Minister Sanae Takaichi, said on Thursday.
Nagahama said he sees Japan’s nominal neutral rate, or the level that neither cools nor overheats growth, at around 1.5%.
The BOJ should thus raise its policy rate, currently at 1%, two more times at a pace of once every six months, he told a news briefing hosted by the Foreign Press Center Japan (FPCJ).
“Moderate BOJ rate hikes are important in rectifying excessive yen weakness,” Nagahama said, adding that the BOJ’s decision to raise rates in June was an appropriate move.
Delaying BOJ rate hikes could also heighten inflation expectations and push up long-term interest rates, he added.
Hand-picked by Takaichi as one of the private-sector members of the government’s top economic council, Nagahama is considered as being among advocates of loose fiscal and monetary policy.
His comments endorsing moderate BOJ rate hikes underscore the concern the administration and Takaichi’s reflationist aides have about the economic pain inflicted by the yen’s declines.
The BOJ is expected to raise interest rates by year-end and again around summer next year, before pausing for a while, said Nagahama, who is also chief economist at Dai-ichi Life Research Institute.
(Reporting by Leika Kihara; Editing by Christian Schmollinger)