The Bank of Japan must raise short-term interest rates to at least 1% by the second half of fiscal 2025 to contain inflation risks, board member Naoki Tamura said on Thursday.

The Bank of Japan will continue to raise interest rates if underlying inflation accelerates toward its 2 per cent target as projected, a senior central bank official said on Wednesday."Underlying inflation is heading toward 2 per cent but still remains below that level now.

The Bank of Japan is increasingly blaming chronic labor shortages, not stagnant demand, as the main reason for its weak economic activity, a justification it may use to lift interest rates beyond what was initially expected.

The Bank of Japan must raise interest rates to at least 1% by the second half of the fiscal year beginning in April, hawkish board member Naoki Tamura said on Thursday, remarks that pushed up the yen as they reinforcing bets of a near-term rate hike.

Japan has “completely” ended deflation and it’s absolutely natural for the central bank to proceed with rate hikes to normalize policy, according to former BOJ Governor Haruhiko Kuroda, whose term was defined by ultra easy monetary settings.

In a speech to business leaders, Naoki Tamura said that the central bank should raise rates to 1% or higher in the fiscal half starting in October.