OKAYAMA: Bank of Japan board member Naoki Tamura said on Thursday the central bank must raise short-term interest rates to at least around 1% to avoid inflationary risks from materialising.

“We must raise interest rates at an appropriate timing, and in several stages,” Tamura said in a speech to business leaders in Okayama, western Japan.

The BOJ last raised short-term interest rates in July and now sets its policy rate at 0.25%.

Bank of Japan raises key interest rate for second time in 17 years

Tamura said the likelihood of Japan’s economy sustainably achieving the BOJ’s 2% inflation was improving, which meant the central bank must raise interest rates to levels deemed neutral to the economy by around late 2025.

He said Japan’s neutral rate of interest, or the level that neither cools nor stimulates the economy, is estimated to be at least around 1%.

“As such, it’s necessary to push up our short-term policy rate at least to around 1%,” by around the latter half of fiscal year ending March 2026 to sustainably achieve the BOJ’s price goal, he said.