MNI INTERVIEW: Jan Hike Likely, Dec Not Ruled Out - Ex BOJ

The Bank of Japan is likely to raise its policy rate by 25 basis points to 0.75% in January as confidence builds around sustained wage growth, though a December hike cannot be ruled out, former BOJ chief economist Seisaku Kameda told MNI on Friday, June 20. 

“However, should trade negotiations between Japan and the U.S. reach a settlement, the timing of the rate hike would quicken – that is the real risk,” said Kameda, now executive economist at Sompo Institute Plus.

While a U.S.-China trade deal could improve the BOJ’s outlook for external demand, Kameda noted it would not be enough to trigger a significant shift in its assessment of the domestic economy and prices. 

The BOJ appears to expect the negative impact of tariffs on growth and underlying CPI to materialise from the second half of this fiscal year into the first half of the next, Kameda said. 

This view is reflected in the Bank’s latest downward revisions to its FY2026 median forecasts, with real GDP cut to 0.7% from 1.0% and core CPI lowered to 1.7% from 2.0% in January.

“It is obvious that the tariffs will exert downward pressure on exports and production,” he continued. “The point is whether domestic demand and capital investment can withstand it, and how seriously the economy will weaken overall.” 

Kameda in March had anticipated a June hike, prior to the reveal of the U.S. administration’s trade policies. (See MNI INTERVIEW: BOJ Rate Hike Likely in June - Kameda)

CAPEX KEY 

Capital investment plans in the BOJ’s June Tankan, due July 1, will be a crucial indicator, Kameda argued, noting tariffs are likely to impact major manufacturers. “Attention should be paid to whether capex plans in other sectors are also affected,” he said, noting major manufacturers’ plans typically follow profit forecasts, which are now under pressure from weakening global demand.

“A deviation from the usual historical capex pattern would be significant,” he added. However, business sentiment and plans among non-manufacturers are unlikely to show deterioration as they are less directly impacted by tariffs, Kameda argued.

MIXED SIGNALS

Services prices remain weaker than the BOJ expected, as public utility charges and imputed rents are subdued, even as private service prices are rising gradually, Kameda said.

Meanwhile, goods prices are stronger than forecast, with firms passing on higher labour, materials and distribution costs. “The BOJ attributed the high goods prices mainly to the rise in rice prices,” he continued. “But prices of other items – such as meat, confectionery, and dairy – are also rising.”

As a result, inflation may not slow as much as the BOJ projected, though it will still move moderately toward the 2% target, he added. The Bank may tolerate high prices if it is overly focused on the downside risks from tariffs, Kameda warned, noting firms’ inflation views – such as sales price expectations – are unlikely to change significantly from three months ago.

However, some firms’ inflation expectations will likely be influenced by the BOJ’s downward revision to its FY2026 outlook, as major companies often align their views with government or central bank projections, he said. Unless tariff-related conditions improve significantly, the BOJ’s growth and inflation forecasts due in July are unlikely to shift much from the May 1 projections, Kameda concluded.