BOJ Warns Rising Food Prices May Fuel Underlying Inflation, Signals More Rate Hikes

Bank of Japan Governor Kazuo Ueda warned that surging food prices—especially a 90% spike in rice—could intensify underlying inflation, pushing it closer to or beyond the central bank’s 2% target. While core inflation reached 3.5% in April, its highest in over two years largely due to a 7% increase in food costs, the BOJ is watching closely to determine whether the pressure will persist.

Ueda, speaking at a BOJ-hosted conference, noted that public inflation expectations are now between 1.5% and 2%—the highest in three decades. Though inflation remains slightly below target, the central bank is concerned renewed food price hikes could lift long-term inflation further, even if the base-case scenario expects this pressure to ease.

The BOJ raised short-term rates to 0.5% earlier this year, ending a decade of ultra-loose policy, believing Japan was nearing a sustainable 2% inflation level. However, ongoing economic uncertainties, including heightened U.S. tariffs and downgraded domestic growth forecasts, have made future policy moves more cautious.

Still, Ueda emphasized the central bank remains data-dependent and ready to adjust its stance if inflation and economic activity align with projections. The BOJ aims for underlying inflation to trend toward 2% through fiscal 2027 but is prepared to raise rates if confidence in that trajectory strengthens.

A recent Reuters poll indicated most economists expect no rate change through September, though many see a potential hike by year-end. With inflation risks rising, especially from food prices, the BOJ’s path forward remains delicately balanced between supporting growth and containing inflation.