Japan Economy Minister Downplays Inflation Risks Despite BOJ Warning

Japan's Economy Minister Minoru Kiuchi said consumer price increases remain moderate despite ongoing geopolitical tensions in the Middle East, suggesting that inflationary pressures are still under control even as the Bank of Japan (BOJ) warns of stronger upside risks.

Speaking at a news conference on Tuesday, Kiuchi noted that Japan's overall consumer price index (CPI) increased 1.7% year-over-year in June, indicating that inflation has not accelerated significantly. He added that the impact of higher energy and import costs linked to the Middle East conflict has so far been limited.

Kiuchi acknowledged that businesses could gradually pass on higher costs to consumers, particularly for food and other everyday goods, from summer through autumn. However, he stressed that the government expects real wages to rise by nearly 1% during the fiscal year ending March 2027, helping offset the burden of higher living costs.

The minister also emphasized that the government remains committed to supporting households through measures such as fuel subsidies to ease inflationary pressures.

His comments contrast with the BOJ's latest assessment. Last week, Japan's central bank issued its strongest warning yet that inflation could exceed its 2% target, signaling growing concerns that price gains may become more persistent.

Kiuchi, who is widely viewed as a supporter of accommodative monetary policy, urged the BOJ to continue managing policy carefully to achieve its 2% inflation goal in a stable and sustainable manner.

The economy minister has participated in recent BOJ policy meetings, including last week's session and the June meeting, when the central bank raised its benchmark interest rate to 1%, the highest level in 31 years.

According to the BOJ's summary of opinions from the June meeting, Kiuchi argued that the central bank should remain accountable for its policy decisions and respond quickly if the Japanese economy experiences extreme market volatility. His remarks were interpreted by financial markets as a sign that the government remains cautious about the pace of further interest rate hikes, despite the BOJ's increasingly hawkish stance on inflation.