FX.co ★ BoJ Nakamura Stresses Need for Caution on Rate Hikes

Bank of Japan board member Toyoaki Nakamura has expressed the need for cautious consideration when it comes to raising interest rates, due to increasing economic risks arising from elevated U.S. tariffs. Recognized as the board's most dovish policymaker, Nakamura, in a recent address, emphasized the importance of the central bank's prudent guidance on monetary policy. He noted that significant tariffs, particularly on automobiles, have the potential to negatively impact corporate profits and overall economic activity. "Japan’s economy is currently under significant downward pressure," Nakamura stated, highlighting that premature rate increases amidst a slowdown could adversely affect both consumption and investment. His remarks follow Japan's economy contracting in the first quarter, marking its first annual decline and at a rate faster than anticipated. Although capital expenditure remains consistent, uncertainties regarding U.S. trade policies have led firms to defer or scale back investment plans. Nakamura cautioned that these tariffs could initiate a detrimental cycle of decreasing demand and prices, necessitating a careful approach from the Bank of Japan in its forthcoming policy decisions.