Quick overview

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Governor Kazuo Ueda of the Bank of Japan stated that if underlying inflation approaches its yearly target of 2 percent, the central bank will be prepared to raise interest rates further.

The BOJ has indicated that underlying inflation, a specific indicator of demand-driven price pressures, has fallen short of its annual target, although overall consumer inflation has been trending well above 2 percent for at least the last three years

While the central bank ended nearly ten years of ultra-loose monetary policy last year by initiating a rate hike cycle, its first since 2008, this has kept the BOJ’s stance largely accommodative.

Ueda informed parliament, “We will continue to raise interest rates to adjust the degree of monetary support once we have more conviction that underlying inflation will approach 2 percent or hover around that level.”

Bets that the BOJ will raise rates again in July were sparked by recent economic data showing a persistent increase in Japanese inflation, with the economy’s resiliency. However, uncertainties about U.S. trade tariffs on its economy, particularly as Japan waits for a favorable trade agreement, could hold up the BOJ’s hand.

Shigeru Ishiba, the Japanese Prime Minister, warned that spending plans will be affected by a hawkish stance.