Divide Within BOJ as “Most Hawkish Member” Calls for Immediate Rate Hike

TradingKey - According to Bloomberg, Naoki Tamura, the Bank of Japan's “most hawkish board member,” advocated for a decisive interest rate hike on Wednesday. He cited a faster-than-expected rise in inflation, despite ongoing uncertainties surrounding U.S. tariffs. 

Last Tuesday, June 17, the BOJ decided to keep the interest rate at 0.5%.

BOJ Governor Kazuo Ueda expressed that the high uncertainty of U.S. tariff policies necessitates a wait-and-see approach rather than rushing into a rate hike. 

The summary of opinions from the June meeting, released on Wednesday, showed that more voices within the committee favored a cautious stance, supporting the maintenance of current rates. 

In contrast, Tamura’s hawkish stance highlights the internal disagreements over interest rate policy within the central bank.

Inflation Continues to Rise and Shows No Signs of Receding

Naoki Tamura pointed out that even before Trump’s reciprocal tariff in April, Japan’s underlying inflation had been on an upward trajectory toward the BOJ's 2% target, outpacing expectations. 

He predicts that the persistent rise in core consumer inflation is unlikely to reverse, as he expects companies to continue raising wages and prices.

He believes that with the general rise in prices, Japan's medium-to-long-term inflation expectations are also increasing. “I think these expectations have reached around 2%,” he noted. 

Tamura forecasts that although U.S. tariffs will exert pressure on Japan’s economy and prices for some time, the consumer inflation rate could remain around 2% during the fiscal year 2027.

When Will the BOJ Raise Rates?

The summary of opinions from the June meeting revealed the BOJ board’s divisions during last week’s meeting, with a general inclination toward caution. The summary cited one member’s remark, “Given the extreme uncertainty of the outlook, it is appropriate for the central bank to maintain the current policy rate for the time being.”

Despite these disagreements, the summary also indicated a consensus among members regarding inflation: the upside in inflation increases the likelihood of a rate hike. Japan’s CPI index, released last Friday, hit a two-year high, with the inflation rate surpassing the 2% target for 38 consecutive months.

In January, the BOJ raised the short-term interest rate to 0.5%, believing Japan was close to achieving the 2% inflation target. Although the BOJ hinted at the possibility of a rate hike in its recent rate decision statement, the timing of such a move has been complicated by uncertainties in U.S. tariff policies.

According to Bloomberg, overnight swap rates suggest the market sees a roughly 30% chance of a rate hike before the October meeting, with the probability exceeding 70% by year-end.