Central bank board member Kazuyuki Masu said Friday that the Bank of Japan needs hike interest rates soon to keep inflation below 2%.

Masu told business executives in Matsuyama, western Japan, that Japan’s inflation is “drawing very close” to 2% as corporations and households abandon deflationary behavior.

Watch whether the yen’s decrease improves inflation expectations and affects underlying inflation “Masu said.
After two hawkish board members voted against maintaining policy constant in October, the BOJ raised its short-term policy rate to 0.75% from 0.5% in December.

Hajime Takata decided to boost the rate to 1% in January, breaking the central bank’s 0.75% rule.However, excessive rate hikes must not disrupt Japan’s new cycle of gradual price and wage increases “The BOJ will raise rates cautiously.

The BOJ may hike rates again, but Masu did not specify the time or tempo.””We rarely raise rates,” Masu told a news briefing after the speech. “We won’t base rate hikes on past pace.”

He denied that the BOJ was failing to control inflation.
Corporations passed on higher raw material and labor prices, keeping core consumer inflation above the BOJ’s 2% target for nearly four years in December.Masu’s opinions weren’t aggressive, said Rinto Maruyama of SMBC Nikko Securities FX and rates.

“But they did underscore the BOJ’s resolve to proceed steadily with rate hikes, rather than sit on the sidelines.”
Masu watched processed food prices as a key indication of future inflation because rising rice prices may have made people more amenable to price increases for other commodities.

Masu said the BOJ must use “timely and appropriate rate hikes” to keep underlying inflation below 2% as Japan enters an inflationary phase.

In January, the BOJ maintained its inflation forecasts and showed readiness to boost still-low borrowing costs while maintaining interest rates.

As the yen depreciates, import costs rise, adding pressure on inflation. Markets expect another hike in April (60%).