BOJ Pledges Further Rate Hikes if Core Inflation Continues to Rise

Key Highlights

• BOJ Governor Ueda pledges further rate hikes once underlying inflation sustainably nears 2% target.
• Despite risks from US tariffs and reaching 0.5% rate, BOJ remains vigilant against zero‑bound constraints.

Bank of Japan Governor Kazuo Ueda reiterated Tuesday the central bank's willingness to continue raising interest rates if underlying inflation approaches its 2% target.

The BOJ has stated that underlying inflation, or demand-driven price pressure as measured by various indicators, remains below its target of 2%, despite the fact that broader core consumer inflation has exceeded that level for three years.

Ueda stated that the BOJ is keeping real interest rates negative to ensure that underlying inflation reaches 2 percent and then stabilizes around that level in a sustainable manner.

"Once we are more confident that underlying inflation will approach or hover around 2 percent, we will continue to raise interest rates to adjust the level of monetary support," Ueda told parliament.

The BOJ ended a decade-long, massive stimulus program last year and raised short-term interest rates to 0.5% in January, believing Japan was on the verge of meeting its 2% inflation target for the long term.

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While the central bank has indicated a willingness to raise interest rates further, the economic consequences of higher US tariffs forced it to lower its growth forecasts and complicate decisions about the timing of the next rate hike.

Although the BOJ is considering further rate hikes, Ueda said the central bank must be wary of hitting the zero lower bound again - or being forced to cut interest rates to zero, leaving it with few tools to combat a recession.

"It cannot happen right away. However, if the economy and prices experience significant downward pressure, the BOJ will have limited room to cut interest rates and support growth," Ueda said. "That's why we need to be mindful of the zero lower bound."

The BOJ is widely expected to maintain interest rates at 0.5 percent at its next policy meeting on June 16-17.