Most Hawkish BOJ Member Flags Rate Hike Risk as Inflation Gains

Yahoo

25-06-2025

(Bloomberg) -- The Bank of Japan's most hawkish member said it may be necessary to raise interest rates should inflation risks rise even if economic uncertainty lingers.
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'When the likelihood of achieving the price stability target increases, or when upside risks to prices grow, I believe that the bank may face a situation where it should act decisively, despite heightened uncertainties,' Naoki Tamura said Wednesday in a speech to local business leaders in the northeast city of Fukushima.
He spoke soon after the release of a summary of opinions from the BOJ's policy meeting last week. The brief record showed policymakers saw little need to rush on their next rate hike along with a broadening view that price gains have been stronger than expected, indicating a chance the central bank could revise up its inflation forecasts at next month's policy meeting.
The BOJ is waiting to see the impact of US tariff measures and how trade negotiations between Japan and the US play out, and has cited 'extremely' high uncertainty ahead in recent communications. Tamura said he doesn't expect the situation will be 'entirely cleared up.'
Speaking to reporters in the afternoon, Tamura said it's unlikely the bank would raise rates while the trade talks are still underway, although the chance of a hike isn't zero if authorities fear they face the risk of falling behind the curve to address inflation.
'There is a possibility,' Tamura said. 'But the likelihood isn't that high in reality for upside prices risks to rise so much when the talks are underway.'
Tamura's remarks in the morning helped strengthen the yen against the US dollar temporarily as they suggested the central bank could move earlier on rates than a majority of traders expect. In the afternoon, his comments weakened the yen as they suggested no imminent policy action.
Tamura has been a consistent hawk, and at the December 2024 meeting at which the BOJ held rates steady he was the lone dissenter in favor of a hike. Governor Kazuo Ueda's board raised borrowing costs to 0.5% at the following meeting in January.
On Wednesday Tamura said that recent inflation data have been stronger than expected. Japan's key price measure hit a fresh two-year high in May, leaving the Asian nation with the fastest price gains among Group of Seven economies.
In a February speech, Tamura, a former senior executive at Sumitomo Mitsui Financial Group, said he estimates that Japan's neutral rate is at least around 1% and that borrowing costs need to be set around that level when the inflation target is met.
The central bank currently expects to meet its sustainable inflation goal around the second half of a three-year projection period ending in March 2028. Tamura flagged the possibility it may happen sooner.
'I believe there is a good possibility that the price stability target will be achieved earlier than expected,' Tamura said.
Traders are pricing in around a 30% chance of a rate hike by the October meeting and a more than 70% probability of an increase by year-end, according to overnight index swaps.
(Updates with comments from Tamura's afternoon press conference from the sixth paragraph.)
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