(Bloomberg) -- Bank of Japan Board Member Seiji Adachi acknowledged it’s possible that yen weakness could spur price gains and prompt authorities to consider another rate hike earlier than expected.

“A monetary policy response would be one option if the impact on the achievement of the price stability target is predicted in the event that prolonged excessive yen weakness is affecting inflation,” Adachi said Wednesday in a speech to local business leaders in Kumamoto, southwestern Japan. 

The remarks from Adachi, a noted dove on the board, highlight a dilemma confronting the BOJ, as the persistently weak yen threatens to fuel inflationary pressure at a time when the bank seeks to proceed cautiously with policy normalization after ending the minus rate in March with its first hike since 2007.

Speculation for a July rate hike has been building since two suspected salvos of government currency intervention failed to shift the tide in the market. 

The yen weakened past 157 to the dollar shortly before Adachi’s speech, nearing its low for the month. The government is suspected of having conducted intervention in support of the yen on April 29 and May 2. Adachi said the bank would consider a policy response to the weak yen if it began to influence medium to long-term inflation expectations.

Adachi emphasized the need for keeping financial conditions easy as there’s still not enough certainty the bank can achieve its 2% price target. But the former economist also pointed to the potential for the weak yen spurring inflation toward the goal earlier than projected. For now he expects inflation to pick up some time between the summer and fall. 

“There may be a need to accelerate the pace of adjusting the level of monetary easing with a rate hike if the possibility increases for sustainable and stable inflation to exceed 2%,” Adachi said.

Adachi’s remarks are largely in line with those of Governor Kazuo Ueda, who has recently shifted his tone regarding the weak yen by warning clearly of the potential for policy action in response to the currency’s impact on prices.   

It’s important to keep real interest rates negative to support the economy, said Adachi. The economy contracted last quarter, according to a government report this month, underscoring the lack of strong momentum. 

Still, that doesn’t rule out another move higher from the current range of 0% to 0.1%, as Japan’s inflation has run at or above 2% over the past two years. Those BOJ watchers who expect an early BOJ move higher say financial conditions will remain accommodative even with one more hike. 

Another key focus of traders is whether the BOJ will decide to cut bond purchases as soon in June, when the board next convenes. Adachi said it’s desirable to reduce purchases step by step for the sake of the bond market’s functioning. The BOJ slashed the amount of regular bond operations on May 13 for the first time following the end of massive monetary easing in March. 

That fueled expectations the policy board may decide for reduce purchases on a sustained basis sooner rather than later. 

Japanese bonds sold off across the curve Wednesday with yields on 5-year securities rising to the highest since 2009 and 10-year yields reaching the highest since 2011.

Speaking to reporters Wednesday, Adachi said that the reduction in May itself wasn’t meant to signal any forthcoming policy shift. 

Adachi also said it was difficult to say exactly what the terminal interest rate should be, but there’s a long way to go.

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