BOJ's dovish dissenter signals support for future rate hikes

TOKYO, Oct 7 : The Bank of Japan's new policymaker Ayano Sato said she supports the idea of raising interest rates in several stages, Kyodo news agency reported on Wednesday, highlighting awareness even among dovish board members of the need to combat inflation risks.

Appointed by Prime Minister Sanae Takaichi, who favours looser monetary policy, Sato was one of two dissenters to the BOJ's decision to raise interest rates in September. She joined the nine-member board in June.

In the interview with Kyodo, Sato said she decided to vote against last month's rate hike because consumption lacked momentum and underlying inflation was not picking up pace.

"I support the idea that interest rates should be adjusted in stages, as current financial conditions are accommodative," Sato was quoted as saying, adding that the appropriate timing of future rate hikes would depend on developments in consumption and income.

Sato also said there should not be any pre-set pace for future rate hikes, according to Kyodo.

Risks to the price outlook were "somewhat skewed to the upside" due to rising crude oil prices linked to the Middle East conflict, Sato said.

INFLATION APPROACHING 2 per cent

Along with Toichiro Asada, another newcomer appointed by Takaichi, Sato has been seen by markets as among doves on the nine-member board who could continue to vote against rate hikes.

Their dissents in September pushed down the yen as market players interpreted the move as a sign the BOJ's rate-hike plans would continue to face opposition from Takaichi's administration.

Sato told Kyodo that BOJ rate hikes could contribute to achieving sustained economic growth. The central bank would set policy independently, but in a way that "eventually aligns with the administration's proactive fiscal policy," she said.

After spending years treading cautiously in policy normalisation, the BOJ picked up pace in raising rates by hiking in June and September as the Iran war-induced energy shock added to price pressures from rising import costs via a weak yen.

Upon hiking rates to a 31-year high of 1.25 per cent in September, Governor Kazuo Ueda said the central bank had entered a phase focused on preventing underlying inflation from overshooting its target, raising the prospect of tighter policy.

While the BOJ may pause in October, it is likely to drop hawkish hints that would reinforce dominant market expectations of a December hike, sources have told Reuters.

In a separate interview with the daily Asahi newspaper, Sato said underlying inflation was approaching the BOJ's 2 per cent target, adding that her views on monetary policy were "not that different from many others in the board."