Undeterred by Tariff Risks? Hawkish BOJ Official Calls for Decisive Interest Rate Hikes!

On Wednesday, a hawkish member of the Bank of Japan's (BOJ) board suggested that even amid persistent uncertainties surrounding US tariffs, the BOJ might need to "decisively" raise interest rates to address inflation risks, highlighting the BOJ's concern over growing price pressures.

BOJ board member Naoki Tamura stated that before US President Trump announced comprehensive reciprocal tariffs in April, underlying inflation in Japan had been moving towards the BOJ's 2% target at a slightly faster pace than expected.

Against this backdrop, despite temporary pressures on Japan's economy and prices from US tariffs, Japan's consumer inflation rate is likely to hover around 2% by the end of fiscal year 2027.

He believes that "Japan's underlying consumer inflation has been rising and is unlikely to pull back," and therefore expects Japanese companies to persist in raising wages and prices.

Tamura said, "There is a high possibility that our price stability target will be achieved earlier than expected. When the likelihood of achieving the price stability target increases, or when the risk of price increases rises, we may face a situation where we should act decisively, despite increased uncertainties."

Last year, the BOJ just concluded a decade-long massive stimulus program and raised short-term interest rates to 0.5% in January this year, as it believed Japan was on the verge of achieving its 2% inflation target.

In its latest interest rate decision statement, although the BOJ still signaled its readiness to raise interest rates further, it lowered its economic growth forecasts and made a complex decision regarding the timing of the next rate hike amid pressure from rising US tariffs.

Tamura said that with prices generally rising, Japan's medium and long-term inflation expectations have been gradually increasing.

"Personally, I believe the focus should be on inflation expectations of businesses and households, which are the actual drivers of economic activity. I think these expectations have reached around 2%." "What needs attention is whether further increases will exceed expectations."