BoJ’s Masu says Japan has shifted into inflation as policy normalisation continues

Japan's Transition to Inflation

BoJ board member Masu stated that Japan's economy is managing better than expected through the US tariff shock with little disruption. He emphasized Japan has "fully transitioned into inflation" but expects CPI to drop below 2% in H1 2026 as food price impacts fade and government measures take effect. Masu warned that food prices, particularly rice, pose a significant inflation risk, more so than service inflation.

Rate Policy and Normalization Progress

The BoJ has raised rates four times since March 2024, reaching 0.75% in December 2025, but real interest rates remain materially negative, indicating accommodative financial conditions. He mentioned cautious rate hikes ahead to avoid disrupting the wage-price cycle. Masu also outlined the balance-sheet normalization strategy, with ETF disposal guidelines set in September 2025 and a drastic taper in JGB purchases planned, reducing figures to under JPY30 trillion by FY2027, with holdings projected to decrease by nearly 20% by March 2027. He highlights the fluid situation in Japan's economic policy, emphasizing the potential impact of inflation and interest rate trends on the future economy.