BOJ: Interest rate hike contingent on economic recovery

Shinichi Uchida, Deputy Governor of the Bank of Japan, said the bank will continue to raise interest rates if the economy recovers, while pointing to uncertainty surrounding future prospects due to Trump’s trade policies.

The Deputy Governor explained that core inflation in Japan is expected to remain close to the bank’s 2% target if the economy recovers.

He pointed out that the recent rise in prices in Japan is due to increased import costs and rising food prices, especially rice.

First-quarter data showed that the Japanese economy contracted for the first time in a year, at a faster-than-expected pace, indicating a weak economic recovery threatened by Trump’s trade policies.

In early May, the Bank of Japan kept interest rates unchanged but lowered its growth forecasts, as uncertainty surrounding US tariffs casts a shadow over the outlook for the world’s fourth-largest economy. The central bank expects inflation to achieve its 2% target in the coming years, indicating that the risks posed by US tariffs may only delay, rather than disrupt, interest rate hike plans.