By Leika Kihara
FUKUSHIMA (Reuters) -The Bank of Japan may need to raise interest rates “decisively” to address inflation risks even if uncertainties over U.S. tariffs persist, a hawkish member of its board said, highlighting the bank’s attention to growing price pressures.
Board member Naoki Tamura said underlying inflation had been on track towards achieving the BOJ’s 2% target and rising at a slightly faster pace than expected until U.S. President Donald Trump’s April announcement of sweeping reciprocal tariffs.
While the U.S. tariffs will weigh on Japan’s economy and prices for the time being, consumer inflation is likely to move around the 2% handle through fiscal 2027, he said on Wednesday.
“It is unlikely that underlying consumer inflation, which has been increasing, will turn downward” as companies are expected to stick to their practice of increasing wages and prices, he said.
“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.
The BOJ ended a decade-long, massive stimulus programme last year and in January raised short-term interest rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target.
While the central bank has signalled readiness to raise rates further, the economic impact of higher U.S. tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase.
Tamura said Japan’s medium- to long-term inflation expectations have been rising gradually as price hikes become widespread.
“I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%,” he said. “Attention needs to be paid to whether any further rise is more than expected.”
(Reporting by Leika Kihara; Editing by Christopher Cushing & Shri Navaratnam)
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