Takata warns of inflation overshoot, reinforcing expectations of further BOJ tightening and lifting the yen.

Summary:

• BOJ board member Hajime Takata warned of inflation overshoot risks.

• Repeated call for gradual further rate hikes.

• Said Japan has effectively achieved the 2% inflation target.

• Flagged rising medium- and long-term inflation expectations.

• Remarks came after PM Sanae Takaichi signalled preference for loose policy.

• Media framed speech as hawkish pushback — yen strengthened.

Financial media coverage has zeroed in on renewed hawkish messaging from Hajime Takata, sending the yen firmer earlier as markets reassessed the trajectory of Bank of Japan tightening.

Takata, widely seen as the most hawkish member of the Bank of Japan board, said the BOJ must focus on the risk of an inflation overshoot, arguing that medium- and long-term inflation expectations are rising and price increases are increasingly feeding into second-round effects.

He reiterated his view that Japan has effectively achieved the BOJ’s 2% inflation target and that the economy has emerged from prolonged stagnation. Against that backdrop, Takata called for gradual further rate hikes, saying policy should “make a further gear shift” and assume price stability is almost achieved.

The timing is notable. His remarks came just a day after Prime Minister Sanae Takaichi signalled a desire for continued accommodative policy, a stance widely interpreted as dovish. Media framed Takata’s speech as a counterbalance — reinforcing policy independence and highlighting inflation risks at a moment of political signalling.

Takata also pointed to global forces, including massive fiscal and monetary stimulus and the AI-driven investment boom, as factors that could lift global growth and intensify domestic inflation pressures. He emphasised that deeply negative real borrowing costs are still stimulating credit demand, even after December’s rate hike to 0.75%, a 30-year high.

Importantly, Takata rejected the idea of relying heavily on an estimated neutral rate — calling it difficult to measure — and instead advocated steady, incremental tightening.

The market reaction reflected the hawkish tilt. The yen strengthened as investors priced a higher probability that the BOJ’s next move will be up rather than an extended pause, particularly after Takata’s unsuccessful push for a 1.0% rate in January.