BOJ hawk calls for rate hikes every few months as Tokyo inflation picks up; government unveils $2.3 trillion investment plan
Bank of Japan board member Naoki Tamura said the central bank should raise rates once every few months toward 2%, while Prime Minister Sanae Takaichi's government outlined a 370 trillion yen investment plan and a shift away from large supplementary budgets.
BOJ's hawkish rate path
Naoki Tamura, a hawkish BOJ board member, said the central bank should raise its policy rate by 0.25 percentage points every few months toward a neutral level of around 2%. Speaking in Kobe on June 25, days after the BOJ lifted the rate to a 31-year high of 1%, Tamura warned that upside inflation risks from the Middle East conflict and changing corporate price-setting behavior could require faster tightening.
What I envisage as a baseline path is raising the policy interest rate by 0.25 percentage points at intervals of a few months toward the neutral interest rate level of 2%.
He added that if price risks materialize, the BOJ could increase the frequency or size of hikes, though he saw no immediate need for consecutive moves. The board next meets on July 30-31.
Inflation backdrop
Tokyo's core consumer price index rose 1.6% in June from a year earlier, the first acceleration in eight months, keeping the BOJ on track for further tightening. Tamura noted that companies are passing on rising import costs more quickly than after Russia's invasion of Ukraine, and underlying inflation has already reached 2%.
Government's fiscal overhaul
Prime Minister Sanae Takaichi's government presented a draft economic policy outline that includes over 370 trillion yen ($2.3 trillion) in public-private investments to boost growth potential and national security. The plan introduces a new multi-year budget framework and shifts away from reliance on large supplementary budgets.
We should ensure an appropriate amount of total spending to reinforce growth potential of the economy and expand its nominal size.
Takaichi said the primary budget balance should be managed over multiple years rather than targeting a single-year surplus, and that extra budgets would be limited to truly urgent measures.
Market reactions
Bond strategists warned that the massive investment plan could pressure Japan's government bond market, raising financing uncertainty. Meanwhile, the yen remained under watch as top officials signaled readiness to intervene, with the currency approaching levels that triggered past action.
