BoJ Governor Kazuo Ueda said in a speech today that Japan’s real interest rates remain “significantly low,” and if the Bank’s baseline scenario holds, policy rates will continue to rise. He highlighted that rising labor shortages and firmer medium- to long-term inflation expectations should eventually push underlying CPI toward 2% in the second half of the Bank’s forecast horizon.
Ueda acknowledged, however, that uncertainties remain significant. Chief among them are US economic developments, tariff impact on Japan, and food price inflation.
He warned that tariffs could hurt US firms’ profits and in turn slow employment and income growth — risks that may already be showing in weaker US job data. If firms pass on costs instead, higher consumer prices could sap private demand.
At home, the Tankan survey suggested resilience in services, where the tariff impact is limited, but profit projections for export-heavy industries such as autos showed steep declines.
Food prices are another area of concern. While much of the recent rise has been driven by temporary factors, Ueda cautioned that wage and distribution cost pass-through is increasingly evident. That raises the possibility of more persistent inflation in food.
