BoJ Eyes Further Rate Hikes Amid Persistent Cost Pressures

Bank of Japan board member Kazuyuki Masu said the central bank will continue raising its policy rate and adjust monetary accommodation as underlying inflation nears 2%. Speaking in Fukui on Thursday, he noted the pace of hikes will hinge on progress toward the July baseline scenario and risks from crude oil, AI-driven demand and FX moves. Masu warned that higher fuel and chemical costs tied to the Iran situation could prove more than temporary by lifting distribution and other expenses. Food prices also face pressure from rising domestic logistics, shipping fees and imported fertilizer, raising concern over persistent inflation. He added that recent rate hikes have not curbed firms’ funding demand, which has instead grown, though risks of overheating in corporate investment remain. Households overall hold net asset surpluses, but younger borrowers face heavier housing-loan burdens despite stronger wage growth.

Bank of Japan (BoJ) board member Hajime Takata urged a flexible, data-dependent approach to rate hikes, warning that inflation is edging closer to the 2% target and risks of overheating are rising. Addressing business leaders in Hokkaido, he described 2026 as a “regime change,” with policy no longer tied to a fixed pace but adjusting to domestic and global conditions. Takata, among the central bank’s more hawkish voices, had proposed lifting the benchmark rate to 1.25% at the July meeting, but the idea was rejected in an 8-1 vote, leaving the rate at 1%. Meanwhile, Governor Kazuo Ueda stressed that policymakers will continue raising rates as financial conditions remain accommodative, while weighing inflation risks against the cumulative impact of past moves. He said the board will scrutinise whether economic and price trends stay aligned with its baseline outlook and debate the risks at its next policy meeting.

Bank of Japan remains alert to upside inflation risks and will discuss the need to raise interest rates as markets increasingly expect another hike, Deputy Governor Ryozo Himino said in a speech Thursday. “It is important to stabilise underlying inflation at a level around 2%,” he said, warning that inflation above the 2% price stability target could hurt the economy and warrants greater attention than in the past. Himino added that the central bank will assess risks to its economic outlook, including the Middle East conflict, foreign-exchange movements and stronger AI-related demand. He also argued that “raising rates in a timely manner” could prevent inflation from accelerating and avoid the need for abrupt hikes later, ultimately benefiting smaller firms, mortgage borrowers and public finances. He stressed that the timing and pace of policy adjustment will depend on the likelihood of the baseline economic and price outlook being realised and the risks surrounding it.