BOJ Must Refrain From Raising Interest Rates, says Former Banker

Tsutomu Watanabe, a former Bank of Japan (BOJ) official and expert on price trends, cautioned against raising interest rates to address a weak yen, citing potential negative impacts on consumption and services inflation. Despite the BOJ's recent decision to end its negative a in March, Watanabe emphasized that higher borrowing costs could dampen consumption and hinder efforts to achieve the 2 percent inflation target.

Watanabe pointed out that while BOJ policymakers have indicated the possibility of future rate hikes based on expectations of rising wages and consumption driving services inflation, the actual data suggest otherwise. Services inflation has been weakening since its peak last autumn, indicating subdued consumption that is preventing firms from raising prices.

In Watanabe's view, the BOJ's hope for strengthening services inflation is not supported by current data. He criticized the March stimulus exit as premature, suggesting that there is no compelling reason for the BOJ to raise interest rates in the near future based on existing economic indicators.

Although recent declines in the yen's value may lead to higher goods prices, Watanabe advised against rate hikes until services inflation also picks up. This cautious approach underscores the complexity of the economic challenges facing Japan and the need for policymakers to carefully assess the impact of monetary policy on various sectors of the economy.