Bank of Japan likely to be far slower in raising rates than peers: board member

TOKYO (Kyodo) -- A Bank of Japan board member said Thursday that interest rates in Japan will increase far slower than in other countries, underscoring the central bank's commitment to accommodative financial conditions in the pursuit of stable inflation.

Asahi Noguchi, who sits on the nine-member decision-making body of the BOJ, also indicated that the highest point for its policy rate will still be lower than in other countries, even though the central bank moved to normalize policy by ending unorthodox monetary easing steps and going ahead with its first rate hike in 17 years last month.

The comments came as financial markets are looking for clues on the timing of the next rate increase by the BOJ with its board perceived to be more confident about the possibility of attaining 2 percent inflation backed by wage growth.

"The pace of policy rate adjustments will likely be so slow as to be incomparable to recent cases of other major central banks," Noguchi said in a meeting with local business leaders in Saga Prefecture, southwestern Japan.

Noguchi said his outlook is based on the view there is a long-standing belief among the deflation-wary public that prices and wages cannot rise and that it will take a "decent amount of time" for underlying inflation to be around 2 percent.

BOJ chief Kazuo Ueda has also said recently that underlying inflation, which excludes one-off factors, remains below 2 percent, as he made his case for continued accommodative monetary policy.

At its March policy meeting, the BOJ ended its negative rate policy and decided to guide short-term rates within a range of zero and 0.1 percent.

It ended some asset-buying, including purchases of exchange-traded funds that have supported stock markets in times of volatility. Still, it has vowed to buy roughly the same amount of long-term Japanese government bonds to prevent a spike in long-term interest rates following the scrapping of its cap on 10-year bonds.

Japan has seen the main driver of inflation shifting from cost-push factors such as higher imported prices of energy and raw materials to those linked to domestic demand.

Noguchi pointed to rising service prices as a good sign that the inflation target can be achieved stably and sustainably. The service sector is less susceptible to cost-push factors, and when service providers raise prices they do so to offset higher labor costs.

"What is most important for the Japanese economy now is to achieve a virtuous cycle of wage and price hikes," Noguchi said, adding that both service price inflation and smaller firms recouping higher staff costs through price hikes are critical.