[Press Conference] Committee Member Masu (Fukui, September 10)

Committee Member Masu heard about regional challenges and conditions, as well as requests for the Bank of Japan, from representatives of government, business, and finance in Fukui Prefecture. The meetings also conveyed an attitude of addressing the prefectural economy persistently and positively without taking a pessimistic view of it.

Despite the effects of conditions in the Middle East and natural disasters, the Fukui Prefecture economy was assessed as solid overall and recovering moderately. It is now at a stage where its response to high prices and resilience to natural disasters will be tested.

The Bank of Japan indicated a policy of continuing exchanges of views with the region through the Kanazawa Branch, Fukui Office, and other channels, with price stability and financial system stability as its top priorities.

Regarding rising prices, there are concerns that, in addition to food, logistics costs will affect underlying prices. However, a situation in which the underlying inflation rate substantially exceeds 2% is not currently in sight.

Regional voices have expressed concern that, if rate hikes proceed rapidly, small and midsize businesses may be left with almost no profits and may find it difficult to borrow for growth investment. Regional financial institutions will also face the challenge of responding to lending and deposit interest rates.

The Bank of Japan said it would gather on-the-ground views through its branches and offices, including regarding the adverse effects of rate hikes on small companies that are difficult to capture in statistics, so that it does not overlook harmful effects.

It was explained that, in Fukui Prefecture, the bottlenecks in the flow of goods feared in connection with the issue involving Iran have now been largely resolved. Meanwhile, prices have risen, and labor shortages were identified as the problem most confronting businesses in the region. Requests were made for the Bank of Japan to pay attention to local circumstances as well.

The underlying inflation rate was said to be approaching the point at which it would reach 2%, but not to be in a situation where it would substantially exceed that level. The important point is to stabilize it at 2% after reaching that level, and the view was expressed that there are currently no data showing a significant and rapid upside surprise in the inflation rate.

Regarding the need to bring the policy interest rate into the estimated range for the neutral interest rate, Committee Member Masu explained that the intention was to quickly end the situation in which the rate had remained below the Bank of Japan's indicated range of 1.1% to 2.5% for an extended period. However, no specific level, such as the midpoint of the range, was indicated. Masu said that whether monetary policy would still be accommodative even if the rate reached 1.25% would be judged at that time.

The timing and pace of rate hikes would be discussed one at a time after examining exchange rates, crude oil prices, international food prices, and other factors through the next meeting. It was explained that past intervals between rate hikes were four months from March to July 2024, followed by six months, then 11 months, and another six months, and that operations were not based on a precomputed interval of roughly six months.

Although the Bank of Japan remains mindful of the rate-hike mode overseas, it said that it would judge monetary policy in line with Japan's circumstances. Regarding remarks by the United States Secretary of the Treasury, Committee Member Masu said that it was not a position in which Masu should comment, and stated that the adjustment of the degree of monetary accommodation would be judged appropriately by Japan's central bank.

The basic position is that long-term interest rates are formed in the market, and the view was expressed that high crude oil prices, inflation, and problems facing countries concerning fiscal policy are contributing to high interest rates. It was said that agile operations, such as increasing government bond purchases, would be conducted in exceptional circumstances, and whether the current situation qualifies would be judged in light of conditions.