By Leika Kihara

NIIGATA, Japan (Reuters) -The Bank of Japan must continue to normalise monetary policy by raising real interest rates to “a state of equilibrium” to avoid creating unintended distortions in the future, its board member Junko Koeda said on Thursday.

The output gap has been around 0%, while labour market conditions have been tight due to labour shortages, she said.

“In this situation, the BOJ must continue to raise the policy interest rate and adjust the degree of monetary accommodation in accordance with improvement in economic activity and prices,” she said in a speech.

BOJ Governor Kazuo Ueda has said the central bank will continue to raise interest rates, now at 0.5%, if it becomes convinced that underlying inflation will stabilise around its 2% target.

Markets are c

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