A private-sector member of Japan's Council on Economic and Fiscal Policy, Toshihiro Nagahama, stated on Thursday that the Bank of Japan should persist with moderate interest rate increases to address excessive yen depreciation. Nagahama is viewed as an economic advisor to the dovish Prime Minister, Sanae Takaichi.

Nagahama expressed his view that Japan's nominal neutral interest rate is approximately 1.5%. The nominal neutral rate is the level that neither curbs economic growth nor triggers overheating.

During a press conference, he indicated that consequently, the Bank of Japan should raise the current policy rate, which stands at 1%, two more times, following a pace of one hike every six months.

"Moderate rate hikes by the Bank of Japan are crucial for correcting the excessive depreciation of the yen," Nagahama stated, adding that the central bank's decision to raise rates in June was appropriate.

He further noted that delaying rate increases could also exacerbate inflation expectations and push up long-term interest rates.

Nagahama, who was personally selected by Takaichi as a private-sector member of the council, is seen as an advocate for accommodative fiscal and monetary policies.

His remarks supporting moderate tightening by the central bank highlight concerns within the government and among reflationist advisors close to Takaichi regarding the economic pressures stemming from the weak yen.

Nagahama, who also serves as the chief economist at the Dai-ichi Life Research Institute, stated that he expects the Bank of Japan to hike rates before year-end and again around next summer, after which it would pause for a period.