BoJ Nakamura stresses need for caution on rate hikes

Bank of Japan (BoJ) board member Toyoaki Nakamura urged continued caution on raising interest rates, highlighting mounting economic risks posed by heightened U.S. tariffs and a fragile domestic recovery.

BoJ Nakamura stresses need for caution on rate hikes

Widely seen as the most dovish voice within the central bank’s policymaking board, Nakamura said in a speech that Japan’s economy is now facing "intensifying downward pressures," arguing that the BoJ should steer monetary policy "carefully and patiently" to avoid prematurely tightening financial conditions. He specifically flagged steep U.S. tariffs—particularly those targeting the automotive sector—as a key threat to corporate profitability, business sentiment, and overall economic momentum. "Rushing into rate hikes during a period of deceleration could undermine both consumption and private investment, leading to prolonged economic weakness," Nakamura warned, adding that the risk of a "vicious cycle of lower demand and falling prices" has increased as global trade headwinds mount. His comments followed data showing Japan’s economy contracted at an annualized pace of 1.8% in the March quarter, marking the first decline in a year and deeper than market expectations, largely driven by weaker exports and sluggish private consumption.

Trade war causes uncertainty

Despite a degree of resilience in capital expenditures, Nakamura noted that heightened uncertainty around U.S. trade policy is causing many firms to postpone or downsize investment plans, weighing on domestic machinery orders and employment prospects. He also cited the yen’s recent appreciation as an additional drag on exporters' earnings, further complicating the BoJ's path toward its elusive 2% inflation target. Market participants interpreted Nakamura’s speech as signaling that the BoJ is likely to maintain its ultra-loose policy stance in the near term, even as some board members have started discussing conditions for eventual policy normalization. Analysts noted that growing divisions within the BoJ board could emerge if inflationary pressures remain subdued and external risks continue to intensify. Nakamura concluded by emphasizing the importance of maintaining ample monetary support while remaining vigilant to signs of financial imbalances, stating that any adjustments to policy should be "data-dependent and gradual."