Bank of Japan board member Hajime Takata said on Thursday the central bank must keep raising interest rates if it can confirm that companies would continue to increase spending and wages.
"The stock and currency market saw big volatility in early August and the fallout continues. As such, we need to scrutinise market developments and their impact for the time being," Takata said in a speech to business leaders in the city of Kanazawa.
"If inflation moves roughly in line with forecasts, and companies continue to boost spending, wages and pass on costs through price hikes, then we need to adjust the degree of monetary easing further," he said.
The BOJ ended negative interest rates in March and raised short-term rates to 0.25% in July on the view the economy was making progress toward durably achieving its 2% inflation target.
BOJ Governor Kazuo Ueda has signalled the bank's readiness to raise interest rates further if inflation stays around 2% in coming years accompanied by solid wage gains, as the board currently projects.
While U.S. and European central banks are considering or moving toward rate cuts, the effect of their past aggressive monetary tightening could appear with a lag and weigh on Japan's economy, Takata said.
The difference in monetary policy stance between that of the BOJ and other central banks could also cause market turbulence, Takata said. "As such, we must carefully monitor domestic and overseas developments for the time being," he said.
