Japan’s central bank has scope to hike its benchmark rate to as high as 0.5% by year end, if economic conditions stay more or less on the same track, according to a former member of the Bank of Japan’s (BOJ) policy board.

“It really depends on the real economy, but if economic expectations stay like the current situation, I think it would be OK for another one or two hikes, ending up at like 0.5% or so,” Takako Masai told Bloomberg TV on Monday morning.

Corporate and household inflation expectations have changed, now that prices having risen during the last two years, Masai said.

“The BOJ wants to make sure everything’s OK, but at the same time they have to deal with the side effect, which is the weaker yen,” she said. “On the bright side, companies have good results, and enough capability to make investments for the future.”

The BOJ needs to ramp up its communication on the yen, and remain wary of its possible impact on consumption, she said. Masai served on the bank’s board for five years until June 2021.

Data last Friday showed that Japan’s inflation cooled in April for a second month, with consumer prices excluding fresh food rising 2.2%. The gauge stayed above the BOJ’s 2% price target for a 25th month.

Based on recent communications from the central bank, including its summary of opinions from recent policy meetings and comments from its leadership, it seems authorities are focused on pursuing further steepening of the government bond yield curve, Masai said. 

She said it’s still hard to discern the BOJ’s exact assessment of the weak yen’s impact on the economy.

“They need to make some communication on this aspect,” she said.

  - Bloomberg