Bank of Japan Takata maintains a hawkish stance: "After a brief pause," it may restart the interest rate hike cycle

According to the Zhitong Finance APP, Hajime Takata, a member of the Bank of Japan's Policy Board, warned that the bank's interest rate hike cycle will only be "briefly paused" before it resumes. Despite U.S. President Donald Trump's threat to impose higher tariffs on Japanese goods, casting a shadow over the economic outlook, Takata maintains his hawkish stance.

Speaking to local business leaders in Mie Prefecture, Japan, on Thursday, Takata stated, "I believe the central bank is currently only pausing the interest rate hike cycle, and after a period of 'wait-and-see,' it should continue to adjust its policy direction."

Trump previously proposed raising tariffs to 35% (originally planned to impose a 24% tariff starting next week), which darkens the prospects of the Japan-U.S. trade agreement. However, Takata's remarks indicate that even in this context, the Bank of Japan is still looking for further opportunities to raise interest rates.

As a hawkish representative on the central bank's board, Takata pointed out that Japanese authorities "may need to adjust flexibly in response to U.S. policy changes and return to the interest rate hike cycle." His statement suggests that if the tariff measures have a real impact, there remains a possibility of another rate hike this year.

Given the high uncertainty surrounding U.S. policies, he emphasized, "The central bank needs to implement monetary policy in a more flexible manner to avoid excessive pessimism."

At the time of Takata's remarks, Japan's inflation rate was still at the highest level among the G7 countries. In May, a key cost-of-living indicator hit a two-year high, and the minutes from the central bank's meeting last month showed that officials generally believed the inflationary momentum was slightly above expectations.

"The Japanese economy is close to achieving the price stability target," Takata stated, "The key to further adjustments in monetary policy lies in the sustainability of corporate proactive behavior."

Bank of Japan Governor Kazuo Ueda has repeatedly emphasized that the core inflation rate remains below the 2% policy target, and he hopes to see a clear upward trend in inflation before resuming interest rate hikes, while also needing to confirm the potential impact of U.S. trade policies on the economy.

As a seasoned economist and former bond analyst, Takata has mentioned in previous speeches that as economic activity improves, it is necessary to raise borrowing costs. His similar statements helped prepare investors for a policy shift before the Bank of Japan historically ended its large-scale monetary easing policy in March 2024.

Takata added on Thursday, "Even if the current economy remains resilient, the longer the concerns about tariffs persist, the greater the downward pressure on economic activity may become."

According to a Bloomberg survey last month, over 90% of observers of the Bank of Japan expect the bank to maintain the benchmark interest rate at 0.5% in its next policy decision, scheduled for July 31