# Bank of Japan board member says the central bank need not be overly cautious about raising rates

Junko Koeda said the neutral interest rate is "considerably above 1%." Mitsubishi UFJ Financial Group (MUFG), Japan's largest bank, is cautiously buying government bonds again after 30-year yields rose sharply this month.

- Published: 2026-10-15T05:13:03.263Z
- Canonical: https://polylog.news/2026-10-15/bank-of-japan-board-member-says-the-central-bank-need-not-be
- Publisher: Polylog (Global desk)
- Section: macro
- Sources: [Bank of Japan](http://www.boj.or.jp/en/about/press/koen_2026/ko261015a.htm), [The Japan Times (Business)](https://www.japantimes.co.jp/business/2026/10/15/companies/mufg-global-markets-japan-bonds/), [Jiji Press](https://www.jiji.com/jc/article?k=2026101500352&g=pol)

Junko Koeda, a member of the Bank of Japan (BOJ) Policy Board, said on Thursday that the central bank need not be "overly cautious" about raising interest rates. She made the remarks in a [speech in Kumamoto](http://www.boj.or.jp/en/about/press/koen_2026/ko261015a.htm). According to [Nikkei](https://www.nikkei.com/article/DGXZQOUB139QO0T11C26A0000000/) and Kyodo reporting carried by [Tokyo Shimbun](https://www.tokyo-np.co.jp/article/521719), Koeda said rate increases should continue. On timing, she said only that the bank should adjust "in a timely manner." She described the neutral rate, the level that neither speeds up nor slows down the economy, as "considerably above 1%," adding that some estimates based on Japan's potential growth rate put it above 2%.

The bond market has been moving toward that view. The 30-year Japanese government bond (JGB) yield [rose to 4.235% on October 5](https://www.publicdebtnet.org/pdm/.content/News/2026/10/05/News-00007.html), and Prime Minister Sanae Takaichi then told investors to ["rest assured"](https://finance.yahoo.com/economy/policy/articles/takaichi-tells-japanese-investors-rest-223351303.html) about public finances. The [Japan Times](https://www.japantimes.co.jp/business/2026/10/15/companies/mufg-global-markets-japan-bonds/) reported that MUFG is cautiously buying benchmark JGBs again. Atsushi Yamashita, head of MUFG Bank's global markets business, expects the 10-year yield to peak at about 3.2%. He warned that yields could rise further if the BOJ fails to contain inflation or if Takaichi cannot convince investors that she controls spending.

Takaichi is also reshuffling her government. [Jiji Press](https://www.jiji.com/jc/article?k=2026101500352&g=pol) reported that she appointed Arata Takebe as agriculture minister as she moves quickly to rebuild her team. Rice prices and farm subsidies, which affect both inflation and the budget, will be among the issues her ministers must manage.

## What this means

The world's largest creditor nation is ending decades of near-zero interest rates while its government asks investors to trust its spending plans. That combination explains the sharp rise in long-term yields. A board member's statement that the neutral rate may exceed 2% tells markets the BOJ is far from finished tightening, new information for anyone who had priced the end of rate increases near 1%. The groups most exposed are Japanese life insurers and banks holding older low-yield bonds, and global investors who borrowed cheaply in yen to buy higher-yielding assets abroad. Higher Japanese yields draw Japanese money home and add upward pressure on US and European long-term yields. MUFG's renewed buying suggests large domestic holders see value at current levels. The common view is that the BOJ will move slowly out of caution. Koeda's speech argues against that. Our forward read: Japanese long-term yields are likely to stay near their highs for months, and the BOJ is likely to raise rates again. If Takaichi's budget relies on larger bond issuance, expect the Ministry of Finance to cut issuance of the longest maturities to calm the market. A sharp yen appreciation that lowers imported inflation would prove this wrong.

## What to watch

- Ministry of Finance changes to its bond issuance plan, especially at 20-year and longer maturities. A cut would be a balance-sheet attempt to hold down yields.
- The yen against the dollar after today's equity sell-off. A stronger yen would suggest Japanese investors are unwinding trades funded in yen.