VG Markets Download Now

BoJ's Asada warns rate hikes could push down underlying inflation given consumption lacks momentum

FXStreet · 2026-11-12T05:59:48Z
BoJ's Asada warns rate hikes could push down underlying inflation given consumption lacks momentum

Bank of Japan (BoJ) board member Toichiro Asada said on Thursday that the central bank must be mindful of risk rate hikes that could push down underlying inflation given consumption lacks momentum.

Key quotes

Must be mindful of risk rate hikes could push down underlying inflation given consumption lacks momentum, when asked whether further rate hike such as in December would be premature.

Central bank independence is an important framework to achieve price stability, when asked if BoJ rate hikes could affect government’s economic policy.

Don’t have specific idea in mind on terminal rate. My view is that Japan’s nominal neutral rate is in the lower side of boj staff’s estimated range. 

Terminal rate and neutral rate are very closely intertwined. 

BoJ does not directly control FX, so won’t comment on what desirable level of dollar/yen could be. 

Even if BoJ’s policy rate reaches level aligning with BoJ’s policy target, BoJ could raise or cut rates beyond that.

Want to decide on policy at each meeting scrutinising upside, downside risks as well as financial conditions.

Not thinking of proposing a rate cut now.

There is chance neutral rate is somewhat above BoJ’s policy rate.

I am not against raising rates altogether.

We may need to raise rates slowly in future, at some stage.

If we were to raise rates, must be cautious about pace.

BoJ’s Asada flags cautious path for rate hikes and limited FX focus

BoJ’s Asada speech scores 4.2/10 on FXS Speechtracker, modestly above the speaker’s 3.7/10 historic average, but the tone leans mildly dovish as Asada warns that rate hikes could dampen already weak consumption and push down underlying inflation. Asada’s emphasis on being mindful of the risk of premature tightening, including a possible move in December, signals a preference for a gradual normalization path rather than an aggressive hiking cycle.

Asada underscores central bank independence as key to achieving price stability, while noting no specific view on the terminal rate and judging Japan’s nominal neutral rate to be on the lower side of BoJ staff estimates, which reinforces a low-for-longer rate bias. The comment that BoJ does not directly control FX and will not opine on a desirable Dollar/Yen level suggests limited willingness to use policy as an explicit FX tool, keeping focus on domestic inflation and growth dynamics rather than targeting the Yen.

Market reaction

At press time, the USD/JPY pair trades 0.09% lower at around 159.72.

Bank of Japan FAQs

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.