Koeda urges timely rate increases as inflation risks persist
Bank of Japan (BoJ) Policy Board member Junko Koeda urged timely policy rate increases in Kumamoto on October 15, 2026. She cited upside inflation risks and accommodative financial conditions after September's increase.
1.25 percent is not neutral
September's policy rate increase lifted the overnight call rate to around 1.25 percent.
Koeda said the BoJ must not become overly cautious about further increases.
She placed the neutral rate considerably above 1 percent; adding the 2 percent inflation target to potential growth gives a possible estimate above 2 percent.
BoJ estimates put the real natural rate at minus 0.9 to 0.5 percent, implying a nominal neutral range of 1.1-2.5 percent.
She sees underlying inflation becoming anchored around 2 percent.
Over 70 percent of more than 500 CPI items rose year-on-year, with the median in the low 2 percent range.
The nine board members' July forecasts showed balanced growth risks but upside price risks for fiscal 2026 and 2027.
Demand holds as purchases decline
Koeda cited high corporate profits, wage gains and solid investment plans in the September 2026 Tankan.
Yen depreciation, imported costs and AI demand added price pressure; construction costs, rather than interest rates, weighed on investment plans.
The June 2026 decision retained quarterly reductions of about ¥200 billion in monthly Japanese government bond purchases through March 2027, then fixed purchases near ¥2 trillion from April.
Redemptions would exceed purchases for several years, with flexibility to increase purchases if long-term rates rose rapidly.
Further tightening, no timetable
Koeda's case for further increases rests on inflation persistence and still-accommodative financing.
Her neutral-rate discussion offers a range, not a precise policy destination.
The speech advocates timely action but gives no date or size for the next increase.