FX.co ★ Domestic Upside Risks Outweigh External Pressures: BoJ Noguchi

Monetary policy in Japan is moving into a phase that demands meticulous evaluation, according to Bank of Japan board member Asahi Noguchi. Since April 2025, the global economy has been experiencing negative impacts from U.S. tariffs, despite a consistent domestic trajectory towards achieving the 2% inflation target. "In other words, when it comes to making policy choices, the potential upsides for prices and economic activity in Japan currently surpass the downside risks," Noguchi stated. Japan is transitioning from a zero-inflation norm to a 2% target, a shift that has put a strain on households as import-induced price increases have outpaced wage growth. Although inflation is expected to decelerate as import cost pressures subside, the recovery of real wages might take longer. With the labor market nearly at full employment and the output gap almost closed, policymakers need to balance domestic growth prospects against external challenges, vigilantly observing underlying inflation before contemplating any rate adjustments.