Concerns mount ahead of BOJ December meeting

With stubbornly high food costs keeping inflation above the two percent target for nearly four years, the Bank of Japan (BOJ) is widely expected to raise short-term interest rates to 0.75 percent from 0.5 percent at the end of its two-day policy meeting on Friday, marking the largest increase in interest rates in 30 years.

However, Masazumi Wakatabe, former Bank of Japan Deputy Governor, who is currently a member of the government's top economic council, warned that the BOJ should avoid raising rates too early.

"If Japan's neutral rate rises as a result, it would be natural for the BOJ to raise interest rates," Wakatabe said at a panel.

Corporate leaders have also voiced concern. The head of Japan's auto industry union said that a higher benchmark rate may limit companies' ability to raise wages in the next fiscal year. 

"If the yen sharply strengthened after Friday's decision, it could affect corporate sentiment," Akihiro Kaneko, president of the Confederation of Japan Automobile Workers’ Unions, said in an interview on Tuesday, according to the Japan Times. 

"Sharp moves would make it harder for exporters to offer wage increases as their expected profits would disappear," he added, while noting that companies should be able to adapt if the move is moderate.

The expected rate increase—seen as a key step in the BOJ's efforts to combat persistent inflation—now highlights a widening gap between policymakers seeking caution and those preparing for further tightening.

Markets will be watching Friday's decision closely for signals on how far and how fast the BOJ intends to move in the months ahead.