Japanese dovish board member calls for "slowing down": price rises are not demand-driven, and a rate hike could drag down the economy and inflation.

Bank of Japan Policy Board member Toichiro Asada said the central bank needs to remain cautious and closely monitor the impact of rate hikes on the economybecause rising interest rates carry the risk of pushing price trends lower. "I believe the recent rise in prices is not necessarily driven by demand factors," Asada said Thursday in a speech to local leaders in Nagasaki, southwestern Japan. "In that sense, I think it is necessary for the central bank to carefully consider the pace of any policy rate hike." Asada was one of two Policy Board members who voted against the rate hike at the September meeting. His view alone is not enough to shake the BOJ's intention to continue raising the benchmark rate; but his remarks suggest a possibility: if the central bank acts again in the near future as the market widely expects, the vote could be split. The remarks came after the yen overnight fell to its weakest level in more than two months, briefly touching 159.94 per dollar. After Asada's speech, the yen traded around 159.75 during Thursday's Tokyo session. Markets still bet on a December hike, but divisions are widening Pricing in the overnight index swap (OIS) market shows that after the September hike and October hold, the market sees about an 80% chance of a December rate hike. The September move was the second hike in three monthsthe shortest interval between hikes since 1990. Consistent with his case against a near-term hike, Asada, a former economics professor, stressed that caution is necessary given economic conditions. "Particularly considering that real economic activityespecially private consumptionhas not necessarily been strong recently, I believe sufficient attention should be paid to the risk that a policy rate hike will slow the economy and thereby push down potential inflation," Asada said. Data released earlier this week showed that Japan's household spending in September posted its largest decline since the COVID-19 pandemic, mainly due to severe weather and rising living costs. Economists expect GDP data due next Monday to show consumption spending, which accounts for about half the economy, falling for the first time in nearly two years. The BOJ has also recently noted that Japan's rapid population decline is weighing on consumer spending. In other words, the BOJ is facing a difficult dilemma: inflation calls for tighter policy, but the price increases are not driven by overheated demandthey are cost-push. Under such a structure, a rate hike may suppress not inflation but already-weak domestic demand. Asada's remarks came days after global stock markets had just slumped sharply on AI-related concerns. He also addressed the BOJ's October decision to accelerate the reduction of its ETF holdings, emphasizing its flexibility. "The framework will remain unchangedthat is, depending on changes in financial market conditions, the pace of reduction can be temporarily adjusted or suspended within the range of the annual reduction pace," he said. That phrasing effectively preserves room for the central bank to hit the brakes during market turmoil, consistent with his cautious stance on the pace of rate hikes.