TOKYO, July 2 - Toshihiro Nagahama, a private-sector member of the government’s top economic council and an economic aide to Prime Minister Sanae Takaichi, said the Bank of Japan should pursue further interest-rate increases at a measured pace to help correct what he described as excessive yen weakness.
Speaking at a news briefing hosted by the Foreign Press Center Japan, Nagahama said he estimates Japan’s nominal neutral rate - the policy level that neither restrains nor accelerates growth - to be around 1.5%. Given that benchmark and the BOJ’s current policy rate of 1%, he argued the central bank ought to raise rates two more times, at an interval of roughly once every six months.
"Moderate BOJ rate hikes are important in rectifying excessive yen weakness," Nagahama said, adding that the BOJ’s decision to lift rates in June was appropriate. He warned that delays in raising rates could boost inflation expectations and lift long-term interest rates.
Nagahama was hand-picked by Prime Minister Takaichi as one of the private-sector members of the government’s top economic council. He is viewed as aligned with advocates of looser fiscal and monetary policy and is also chief economist at Dai-ichi Life Research Institute.
His remarks reflect concern within the administration and among Takaichi’s reflationist aides about the economic strain caused by the yen’s declines. Nagahama said the BOJ is expected to raise rates again by year-end and once more around next summer, after which he anticipates a pause in the tightening cycle.
Those recommendations - incremental hikes, spaced over roughly a year, toward a nominal neutral rate near 1.5% - frame the policy path Nagahama believes will reduce currency depreciation without triggering undue economic stress. He emphasized both the corrective role of rate rises for currency stability and the risk that postponement could amplify inflation expectations and push up long-term borrowing costs.
Context and implications
While Nagahama’s advice is framed around currency stability, it also touches on inflation expectations and the yield curve. His position highlights the administration’s sensitivity to the yen’s depreciation and suggests coordinated attention to the timing and cadence of BOJ tightening.