BOJ board member signals rate hikes after pause to assess US tariffs

A senior Bank of Japan policymaker has called for resuming interest rate hikes following a temporary pause to evaluate the impact of US tariffs, in a sign the central bank remains committed to moving away from its ultra-loose monetary policy as inflation pressures gather strength. According to Reuters, BOJ board member Hajime Takata said on Thursday that Japan was making steady progress toward achieving the central bank’s 2 per cent inflation target. He cited robust corporate profits and persistent labour shortages driving wages higher factors underpinning what he described as “home-made inflation.”

While acknowledging the need to “wait and see” due to uncertainties over US trade policy under President Donald Trump, Takata emphasised that the BOJ should be ready to shift policy “nimbly” in response to any changes in the global economic environment. “My view is that the BOJ is currently only pausing its policy interest rate hike cycle, and should continue to make a gear shift after a certain period of ‘wait and see’,” Takata said in a speech on Thursday, as quoted by Reuters.

Cautious optimism despite tariff risks

Takata’s remarks, reported by Reuters, highlight the delicate balancing act facing the BOJ. The central bank ended its massive stimulus programme last year and raised short-term interest rates to 0.5 per cent in January, its first hike in over a decade. However, concerns about the economic impact of US tariffs prompted the BOJ to cut its growth forecasts in May.

According to Reuters, while the BOJ remains cautious about external headwinds, Takata expressed optimism that Japan’s domestic inflation dynamics are strengthening. He argued that medium- and long-term price expectations are steadily rising, not only due to higher raw material costs but also sustained wage increases.

“Japan is finally seeing signs of home-made inflation, a prerequisite for rate hikes,” Takata said, as per Reuters. However, he cautioned that US tariffs could weigh on Japan’s exports, capital expenditure, and corporate appetite for wage growth. Takata stated that the BOJ must assess these risks carefully before proceeding with further policy tightening.

No clear timeline for the next hike

Despite suggesting that rate hikes should resume, Takata offered no specifics on the timing of the BOJ’s next move, citing persistent uncertainty over the direction of US economic policy. “We can’t say now with any pre-set idea,” he said when asked about the prospect of another rate increase this year, according to Reuters.

Takata also noted that if the US Federal Reserve were to cut interest rates to support the American economy, the divergence between the Fed’s easing bias and the BOJ’s tightening stance could drive up the yen and hit Japanese corporate profits.

Breaking free from ‘false dawns’

Takata underscored, as reported by Reuters, that Japan’s economy has experienced repeated “false dawns” in the past, brief recoveries derailed by global demand shocks. But he expressed confidence that this time could be different, with Japanese firms increasingly willing to raise both prices and wages. “My expectation is that Japan will see a ‘true dawn’ this time,” Takata said, according to Reuters.

He added that while the long-term damage from US tariffs may be limited compared with the bilateral trade tensions of the 1990s, since Trump’s levies target a wide range of countries, the BOJ still needed to move cautiously. “I believe the BOJ should gradually and cautiously shift gears in its monetary policy,” he concluded, signalling support for a full, though careful, withdrawal of the central bank’s unconventional easing programme, as quoted by Reuters.

(With inputs from the agencies)