BOJ's Masu flags yen, oil, food as key inflation risks, hints at faster hikes

Masu's remarks contribute to the growing hawkish sentiment among BOJ board members before the September gathering, solidifying market views that a rate increase is all but certain. By highlighting that the weak yen is having a more pronounced effect on inflation than previously observed, and by expressing worry that producer price rises are passing through to consumer prices more than in the past, his comments provide a slight boost to the yen. This indicates the board is not merely responding to headline energy expenses but is constructing a wider justification for normalising policy.

Since the policy rate is already said to be nearing the estimated neutral level, the more market-relevant point might be Masu's statement that the BOJ might need to hike rates quickly if inflation picks up. This increases the importance of economic data due between now and the meeting, as well as afterwards.

Earlier related article:

• BOJ rate hike anticipated, but yen's strength uncertain

A BOJ board member who previously advocated for early rate increases now states that the rationale for further hikes is becoming more robust, not diminishing.

Overview:

• BOJ board member Kazuyuki Masu, who joined in July 2025 and previously served as CFO at Mitsubishi Corp, indicated that core inflation is still under 2% but nearing that level, and that the BOJ is anticipated to keep hiking rates due to ongoing accommodative financial settings.
• Masu is viewed as a relatively hawkish board member. He voted for no change in April but stated in May that the BOJ should raise rates promptly unless there is a clear economic slowdown, so his current remarks are consistent with that position.
• He noted that the speed and timing of rate increases hinge on the probability of achieving the BOJ's baseline forecasts, with attention on oil prices, AI-driven demand, and currency fluctuations, emphasizing that the key priority is preventing inflation from sharply exceeding 2%.
• Masu pointed out that higher fuel and chemical costs might be temporary but could spread via distribution channels, and separately cautioned that cost increases stemming from the Middle East could lead to a more persistent price rise.
• He highlighted that a recent 7% surge in producer prices requires monitoring, predicted that food prices will likely pick up again, and stated that the weak yen's effect on inflation is more significant than historically.
• Masu stated that Japan has exited deflation and the BOJ needs to bring its real interest rate above zero promptly, and that since the policy rate is approaching the estimated neutral level, the central bank must closely watch financial, price, and employment conditions; the next BOJ meeting is set for September 17-18.

BOJ board member Kazuyuki Masu said core inflation is still below the 2% target but is now very near it, and added that the BOJ is likely to keep hiking rates because financial conditions remain accommodative. His remarks were made before the BOJ's next policy meeting on September 17-18, which markets anticipate will result in another rate increase.

Masu, who was previously CFO at Mitsubishi Corp, a trading company, became a BOJ board member in July 2025, occupying a position typically held by a business executive. He is considered one of the more hawkish members on the current board. He voted to hold rates steady at the April meeting but stated the next month that he thought rates should be increased promptly unless there were clear indications of an economic downturn, so his current comments align with that view rather than representing a change.

Regarding policy, Masu said that the speed and timing of future rate increases would depend on the probability of meeting the BOJ's baseline inflation forecasts, along with risks from oil prices, AI-related demand, and currency movements. He said that preventing a sharp overshoot of core inflation above 2% is the most important objective. He also directly addressed the recent rise in energy costs, noting that while an increase in fuel and chemical goods prices might be a one-off event, it could still have a wider effect on prices through distribution networks, and separately expressed concern that cost increases from the Middle East conflict could drive overall prices higher on a sustained basis rather than temporarily.

Masu highlighted various other pressures to monitor, such as a recent 7% jump in producer prices, which he said might pass through to consumer inflation more than in the past, and an expected resurgence in food prices that he called potentially crucial for the long-term inflation outlook. He also said the weak yen is affecting inflation more than historically, so it requires careful monitoring, and separately noted that there is no evidence yet that recent rate hikes are reducing corporate demand for funds, adding that he is watching for signs that corporate investment might be overheating.

On the policy framework, Masu said Japan has exited deflation and the BOJ must lift its real interest rate above zero as soon as possible. With the policy rate now nearing the BOJ's estimated neutral range, he said the central bank must carefully monitor price, employment, and financial conditions, and cautioned that if inflation picks up, the BOJ might be compelled to hike rates faster than currently expected. He also raised a separate long-term issue for the BOJ regarding which maturity range of Japanese government bonds it should keep holding as it considers the appropriate size of its balance sheet.