BOJ Weighs Inflation and Tariff Risks Ahead of Potential Rate Hike

The Bank of Japan (BOJ) remains cautious about raising interest rates, as policymakers weigh rising inflation against the economic risks from new U.S. tariffs. According to the summary of the BOJ’s June 16–17 policy meeting, some members supported maintaining the current 0.5% rate due to uncertainties about how tariffs will affect Japan’s fragile economy.

While several members warned of downward pressure on business sentiment and growth, others pointed to unexpectedly strong inflationary trends, suggesting the central bank may need to act “decisively” with future rate hikes—even amid global volatility. One member specifically noted that while data from April and May appeared solid, the full economic impact of the U.S. trade measures had yet to surface.

Concerns about surging domestic prices, particularly for rice, were also raised, with some members warning that food inflation could alter consumer expectations. Despite these risks, a few board members remained optimistic, saying businesses were still likely to increase wages and investment.

The BOJ, which ended a decade of aggressive monetary easing last year, raised rates to 0.5% in January as inflation hovered above its 2% target for over three years. However, escalating global trade tensions have forced the central bank to scale back its growth projections and slow the pace of balance sheet reduction.

The BOJ is expected to hold its next policy meeting on July 30–31, when it will update its quarterly growth and inflation forecasts. A Reuters poll shows most economists anticipate the next 25-basis-point hike in early 2026.

As inflation trends remain elevated and geopolitical risks persist, the BOJ faces a delicate balancing act between sustaining recovery and containing price pressures.