BOJ policymaker calls for resuming rate hikes after temporary pause

TOKYO: The Bank of Japan should resume interest rate hikes following a temporary pause to evaluate the impact of US tariffs, board member Hajime Takata said, signalling optimism the country was on track to durably achieve the central bank’s price goal.

While the BOJ must take its time scrutinising the fallout from US tariffs, it may need to “nimbly” shift back to rate hikes in response to any changes to US policies, he said.

“My view is that the BOJ is currently only pausing its policy interest rate hike cycle, and should continue to make a gear shift (from ultra-loose monetary policy) after a certain period of ‘wait and see’”, Takata said in a speech on Thursday.

“Given uncertainties regarding various US policies remain high, the BOJ must conduct monetary policy in a more flexible manner without being too pessimistic,” he said.

The remarks by Takata, who is viewed by markets as taking a neutral to slightly hawkish stance on monetary policy, highlight the BOJ’s resolve to resume rate hikes once there is more clarity on whether the economy can weather the hit from US tariffs.

The BOJ ended a massive stimulus last year and in January raised short-term rates to 0.5%.

While the central bank has signalled readiness to raise rates further, the expected impact of US levies forced it to cut its growth forecasts in May.

Takata said Japan was close to achieving the BOJ’s 2% inflation target with robust corporate profits and labour shortages driving up wages and building price pressures.

Medium- and long-term inflation expectations also continue to heighten steadily due not just to rising raw material costs but wage hikes, he said, adding that Japan is finally seeing signs of home-made inflation - a prerequisite for rate hikes.

While predicting that such an assessment will remain “broadly” unchanged despite Trump’s April 1 announcement of sweeping reciprocal tariffs, Takata said he wanted to scrutinise whether US duties would not derail the economy’s momentum towards achieving the BOJ’s price target.

Specifically, the BOJ must assess whether US tariffs could hurt exports, capital expenditure and corporate appetite to continue wage hikes, he said.

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If the US Federal Reserve were to cut interest rates to support the economy, the divergence between the BOJ’s rate-hike bias and the Fed’s easing could push up the yen and hit corporate profits, he added.

Takata, however, said the hit to Japan’s economy from US tariffs will likely be limited compared with the bilateral trade friction in the 1990s as Trump’s levies target a wide range of countries - not just Japan.

Japanese companies’ robust profits and financial buffers also make its economy more resilient to external shocks than in the 1990s, he added.

With firms now more keen to raise prices and wages, Japan is breaking free from a long-held view among society that inflation and wage growth will remain stagnant, Takata said.

“Japan’s economy ended up experiencing several ‘false dawns,’ or temporary economic recoveries, interrupted by global demand shocks. My expectation is that Japan will see a ‘true dawn’ this time,” Takata said.

“I believe the BOJ should gradually and cautiously shift gears in its monetary policy,” based on the view the economy was ready for a full withdrawal of an unconventional easing programme.