MNI INTERVIEW: BOJ Rate Hike Likely in June - Kameda

The Bank of Japan will likely raise its policy rate by 25 basis points to 0.75% at its June 16-17 meeting, a former chief economist told MNI, adding that while unlikely, a hike at the May 1 meeting is still possible.

“The June rate hike is the favoured option in my main scenario,” said Seisaku Kameda, executive economist at insurance firm Sompo Institute Plus.

However, any signs of strong wage growth among smaller businesses within Monday’s branch managers report will add weight to a May 1 hike, he argued, but clarified that this was still highly unlikely as the Bank required more time to examine the impact of past increases. The BOJ is gathering smaller-firm wage hike developments via its special hearings ahead of the meeting, similar to what it did in 2024, Kameda noted. 

Domestic factors, including demand and wages, will fuel arguments for a hike, but uncertainty driven by U.S. trade policies and the global economy, in addition to financial market volatility, will drive the Board’s caution next month, he continued. Assessing the impact of U.S. tariffs – including Wednesday's new 24% duty on Japanese imports and the already revealed 25% auto excise – will be challenging before late FY2025, Kameda added. 

“While information about those economies and U.S. inflation will increase in the coming months, uncertainties will persist afterward,” he said, adding that assessing the extent of the economic slowdown will take time – likely long enough for the BOJ to justify a rate hike. While the Bank must carefully consider a hike amid elevated uncertainties, a June move to 0.75% is well-supported by domestic factors, Kameda argued.

However, raising the rate to 1% would require a more thorough assessment, balancing global conditions against domestic considerations, he said. 

Kameda accurately called the BOJ’s January hike to 0.5%, but had previously expected a further 25bp increase in Q3. (See MNI INTERVIEW: BOJ To Set Rate At 0.75% In Q3 - Kameda)

INFLATIONARY PRESSURES

Kameda warned persistently high goods prices could affect inflation expectations, highlighting the elevated cost of rice. “But prices of processed foods are also rising,” he added. “Cost-push inflation persists on the whole, which will increase the upside risks to prices.” 

While services inflation has underperformed the BOJ’s expectations, it is rising as a trend, and will likely strengthen in or after April following steady wage negotiations, and despite its more recent weak momentum, Kameda continued. “The BOJ needs to be vigilant against the upside risks to prices as a whole,” he argued.

The Bank should also provide a range for its underlying inflation metric, similar to its neutral rate estimate range that includes a margin of error, he added, calling the latter overly complicated. 

The upper range of the Bank’s current underlying inflation view seems to top out at 2%, he said, noting the BOJ should offer a more in-depth explanation.