BOJ policymaker signals readiness to raise rates if inflation on track

By Leika Kihara

TOKYO (Reuters) -The Bank of Japan will continue to raise interest rates if inflation moves in line with its forecast, policymaker Junko Nakagawa said on Wednesday, signaling that last month’s market rout has not derailed its plan to hike borrowing costs steadily.

But the central bank must take into account the impact that such market moves could have on the outlook for the economy and prices when considering whether to hike rates further, said Nakagawa, who is a member of the bank’s policy board.

“Given real interest rates are currently very low, we will adjust the degree of monetary support, from the standpoint of sustainably and stably achieving our 2% inflation target, if our economic and price forecasts are met,” Nakagawa said in a speech.

The BOJ ended negative interest rates in March and raised its short-term policy rate target to 0.25% in July, in landmark actions away from a decade-long, massive stimulus programme.

The July rate hike, coupled with weak U.S. jobs data released in early August, pulled the yen up against the dollar and triggered a plunge in global share prices.

While stressing that there was no major change in Japan’s sound economic fundamentals, Nakagawa said the BOJ “must look back upon market developments” after its July policy shift, and assess their impact on the economy when considering whether to raise rates again.

She also said there were upside risks to Japan’s price outlook due to the country’s tight job market and continued rises in import prices.