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Hideo Tamura

【#1380】Government Should Ask BOJ to Be Consistent with National Policy

Hideo Tamura ／ 2026.06.25 (Thu)


June 22, 2026

　
On June 16, the Bank of Japan raised its policy interest rate by 0.25 percentage points to 1%, the highest level in 31 years, and is poised to raise rates further. If interest rate hikes get ahead of still‑fragile demand, the economy could stagnate. That, in turn, would dampen economic revitalization that the Sanae Takaichi administration pursues through the promotion of domestic investment. The BOJ must ensure that its actions remain consistent with national policy.

Incomprehensible reasons for the rate hike

In the Speaking Out column dated June 1, I warned that rate hikes could trigger the yen’s further depreciation and would be ineffective in addressing cost-push inflation caused by soaring crude oil prices. After the latest rate hike, in fact, downward pressure on the yen increased in the foreign exchange market. This is because speculators sell yen in anticipation of the next rate hike. Despite five rate hikes since March 2024, the yen has continued to weaken.

In its June 16 statement on the rate hike, the BOJ explained that, with crude oil prices surging and firms accelerating their pass‑through of costs, there is a risk that the inflation rate could overshoot the BOJ’s price stability target level of 2%. However, a report from Goldman Sachs Japan Co.'s research department dated June 18 carefully analyzed price pass-through trends by product and concluded that the risk of upside pressure on inflation through crude oil spikes was low at present. I, too, have argued that consumer prices would start a slow uptrend about six months to a year behind the crude oil price hikes and continue it for an extended period. Underlying this is weak demand.

Inflation-adjusted real wages have continued to decline in Japan, posting a 5% decrease from fiscal 2021 to 2025. Real household consumption has been weak. In fiscal 2025, it slipped below fiscal 2013 and 2018 levels. Faced with stagnant demand, many companies have been keeping price pass‑through of rising costs to a minimum. When interest rate hikes suppress demand, especially small or micro businesses will be unable to raise their product prices sufficiently, resulting in profit losses. That will make it impossible for them to secure funding for wage increases or capital investment.

Interest rate hikes increase the interest payment burden for working adults up to their 40s, especially those plagued with debt such as mortgages. In contrast, financial institutions can significantly increase their revenue. As of May, commercial banks’ current account deposits at the BOJ, subject to the policy interest rate, reached 430 trillion yen, meaning that the 0.25-point policy rate hike would increase their revenue by more than 1 trillion yen.

Do not hinder economic growth

The BOJ Act, while guaranteeing the central bank’s independence regarding monetary policy, includes Article 4 that requires it to be consistent with government policy. While the BOJ under Governor Kazuo Ueda appears intent on raising interest rates as a foregone conclusion, Prime Minister Takaichi should urge the central bank not only to correct the gap between its price outlook and reality, but also to adopt monetary policy that does not hinder economic growth.

Hideo Tamura is a Planning Committee member at the Japan Institute for National Fundamentals and a senior correspondent for the Sankei Shimbun newspaper.