Bank of Japan board member Toyoaki Koeda delivered one of the clearest endorsements yet for continued policy normalisation, arguing that interest rates must keep rising to avoid future economic distortions. Koeda said Japan’s underlying inflation is now around 2%, supported by broadly solid economic indicators, tight labour-market conditions and demand–supply balances that have largely normalised.She noted that prices have been “relatively strong” and, in some cases, rising faster than underlying inflation. Temporary cost pressures, including elevated rice and broader food prices, are expected to fade through the first half of the next fiscal year, but Koeda warned these increases could produce second-round effects and influence inflation expectations, which have already trended higher in recent years.Koeda said the BOJ must carefully monitor firms’ wage- and price-setting behaviour, foreign-exchange movements and import-price developments. He emphasised the importance of judging whether long-term inflation expectations remain anchored and whether supply–demand conditions remain tight enough to support sustained 2% inflation. A comprehensive assessment of the economy’s resilience, he said, is essential to achieving the price-stability target.On growth, Koeda said Japan’s momentum may soften temporarily but should accelerate afterwards, helped by still-accommodative financial conditions. Even as real interest rates move less deeply negative, he said, monetary policy will continue to stimulate consumption and investment.Koeda also underscored the need for the BOJ to proceed with predictable balance-sheet normalisation, including discussion of the appropriate size and structure of the bank’s assets and liabilities. He stressed that policy decisions must remain data-dependent, taking into account shifts in economic activity, financial markets and the broader financial system.Looking ahead, Koeda flagged several risks: persistent food-price increases, US tariff policies that may weigh on Japan’s economic activity, and the degree to which wage dynamics — including minimum-wage adjustments, winter bonuses and job switching — reinforce the inflation cycle. He said the BOJ must continue adjusting monetary accommodation “in accordance with improvements in economic activity and prices.” ---Koeda joined the Bank of Japan nine-member board on March 26 2025. At each of the five policy-setting meetings she has attended so far she voted for leaving the policy rate at 0.5%. This article was written by Eamonn Sheridan at investinglive.com.