BoJ board member Hajime Takata indicated in a speech today that the central bank may need to “adjust the degree of monetary easing further” if inflation trends align with forecasts and companies continue increasing spending, wages, and passing on costs through price hikes.

Takata also pointed out the challenges posed by the differing monetary policies of the US and European central banks, which are now moving toward rate cuts. He cautioned that the delayed effects of their aggressive tightening could still impact Japan’s economy. “We must carefully monitor domestic and overseas developments,” Takata added.

Market turbulence, particularly in stocks and currencies, has been significant since early August, and Takata acknowledged that “the fallout continues.” He stressed the need for the BoJ to scrutinize market developments and their impact on Japan’s economy.

Minutes from BoJ’s January 23–24 meeting revealed a growing consensus among policymakers that further tightening would be appropriate, provided the current economic and price outlooks hold.

While the central bank raised policy rate to 0.5%, members acknowledged that real interest rates remained “significantly negative”, ensuring “accommodative financial conditions would be maintained.”

However, the path ahead is clouded by global uncertainty. While BoJ held rates steady at its latest meeting last week, it flagged increasing risks from escalating US tariffs.

Nevertheless, Governor Kazuo Ueda emphasized that stronger-than-expected wage growth and persistent food price inflation could keep upward pressure on underlying prices, indicating that the case for another rate hike remains very much alive.

Japan CPI core (all item ex-fresh food) rose to 0.4% yoy in October, up from 0.3%, matched expectations. All item CPI was unchanged at 0.2% yoy, missed expectation of 0.3% yoy. CPI core-core (all item ex-fresh food, energy), rose to 0.7%, up from 0.5%, beat expectation of 0.6% yoy.

The inflation subdued inflation reading suggests that the sales tax hike in the month had little impact on prices, and is unlikely o derail consumer spending. Yet the core inflation reading remains well below BoJ’s 2% target. The central will need to maintain ultra-loose monetary policy for a prolonged period. But even so, there is little evidence to show that inflation could sustainably hit the target with current stimulus.