BOJ’s Nakagawa Urges Caution as Inflation Nears 2% and Trade Risks Persist
The Bank of Japan is in no rush to recalibrate policy. Speaking at the Okayama Club, Policy Board member Junko Nakagawa said the central bank will proceed carefully as inflation expectations edge closer to the 2% target and global trade uncertainty remains elevated.
Nakagawa highlighted that trade policy tensions—including U.S. tariffs and the redirection of Chinese exports away from the U.S.—could weigh on global growth and, by extension, Japan’s outlook. Even so, she noted that Japanese companies continue to commit to capital expenditure, underscoring corporate resilience. The challenge, she cautioned, is the uneven impact of rising prices: more frequent price and wage hikes may lift household inflation expectations but also pressure consumer sentiment.
Domestically, household consumption remains generally firm, though spending on non-durable goods has softened amid higher food costs, and services demand has leveled after earlier gains. Nakagawa warned that if cost pressures persist and profitability is squeezed, firms could scale back wage growth and cut costs, potentially cooling demand. For now, medium- to long-term inflation expectations are inching higher, and the BOJ will maintain a data-dependent stance to judge whether current price trends are driven by durable wage-price dynamics or short-term cost shocks.
Key Points – BOJ’s Nakagawa signals a cautious, data-dependent approach as inflation expectations approach 2%. – Trade policy risks, including U.S. tariffs and shifting Chinese exports, could pressure global and Japanese growth. – Japanese firms are sustaining capital investment, reflecting corporate confidence despite headwinds. – Rising prices and wages may lift inflation expectations but risk weakening consumer sentiment. – Household consumption is steady overall, with softer spending on non-durables and stabilizing services demand. – Medium- to long-term inflation expectations are gradually rising, while the BOJ’s baseline view on overseas economies remains unchanged.
