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BOJ’s Takata Signals Return to Rate Hikes Amid U.S. Tariff Concerns

BOJ’s Takata Signals Return to Rate Hikes Amid U.S. Tariff Concerns. Source: Asturio Cantabrio, CC BY-SA 4.0, via Wikimedia Commons

Bank of Japan (BOJ) board member Hajime Takata suggested the central bank should resume interest rate hikes after a brief pause to evaluate the impact of new U.S. tariffs. Takata expressed confidence that Japan is nearing sustained achievement of the BOJ’s 2% inflation target, supported by strong corporate profits and rising wages due to labor shortages.

Takata emphasized that the current pause is temporary, adding the BOJ must remain flexible and ready to "nimbly" resume tightening depending on shifts in U.S. policies. While the central bank cut growth forecasts in May due to concerns over U.S. levies, Takata believes Japan’s economy is resilient, thanks to robust corporate earnings and financial stability—unlike the trade tensions of the 1990s.

He noted that inflation expectations are rising steadily, driven by higher raw material costs and wage growth, signaling the emergence of domestic inflation—a key condition for further rate hikes. Takata warned, however, that U.S. tariffs could affect Japanese exports, capital investment, and wage momentum. Additionally, if the U.S. Federal Reserve cuts interest rates while the BOJ tightens, the yen could strengthen, squeezing export-driven corporate profits.

Despite these uncertainties, Takata remains optimistic, citing a shift in Japan’s economic mindset where companies are more willing to raise wages and prices, breaking the long-standing stagnation in inflation. He stressed that the BOJ should gradually and cautiously exit its ultra-loose monetary policy, viewing current conditions as the beginning of a "true dawn" for Japan’s economy, rather than another false start.

Takata is viewed by markets as a neutral-to-hawkish policymaker, and his comments reinforce expectations that the BOJ remains on track to tighten policy once the external environment stabilizes.

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