By Leika Kihara
FUKUSHIMA () – A vocal member of the Bank of Japan’s board stated that the institution might have to significantly increase interest rates to tackle inflation threats, despite ongoing uncertainties regarding U.S. tariffs. This indicates the central bank's increasing concern about rising pricing pressures.
Naoki Tamura, a board member, stated that underlying inflation was progressing toward the BOJ’s 2% objective and increasing somewhat more rapidly than anticipated up until U.S. President Donald Trump announced extensive retaliatory tariffs in April.
Although the U.S. tariffs will temporarily burden Japan’s economy and affect pricing, consumer inflation is expected to stay near the 2% mark throughout fiscal year 2027, as mentioned on Wednesday.
He stated that it’s improbable for core consumer inflation, which has been rising, to decrease, since businesses are likely to maintain their approach of raising both salaries and prices.
"There is a good possibility our price stability target will be achieved earlier than expected," Tamura said in a speech to business leaders in Fukushima.
"When the likelihood of achieving our price stability target increases, or when upside risks to prices grow, we may face a situation where we should act decisively, despite heightened uncertainties," he said.
Last year, the BOJ concluded a substantial stimulation program that had lasted for about ten years. In January, they increased short-term interest rates to 0.5%, believing that Japan was nearing sustainable achievement of their 2% inflation objective.
Although the central bank indicated preparedness for additional interest-rate hikes, the economic effects of increased U.S. tariffs led them to reduce their growth projections and made determining the optimal moment for the subsequent rate hike more challenging.
Tamura stated that Japan's medium- to long-term inflation expectations have been increasing steadily as price increases become more pervasive.
In my view, the emphasis ought to be on the inflation expectations of businesses and families, as they are the key players driving economic activities. These expectations are currently close to 2%, according to me," he stated. "It’s important to monitor if any additional increase surpasses what was anticipated.
(Reported by Leika Kihara; Edited by Christopher Cushing & Shri Navaratnam)