- U.S. tariffs may slow, but not derail, Japan's recovery
- Tamura talks up chances of inflation hitting target sooner than expected
- Remarks more hawkish than those of Ueda urging rate hike pause
- Tamura offers no clear hints on next rate-hike timing
- Board split over rate pause and inflation risks, summary shows
FUKUSHIMA, June 25 (Reuters) - The Bank of Japan may need to raise interest rates "decisively" to address inflation risks even if uncertainties over U.S. tariffs persist, a hawkish member of its board said, highlighting the bank's attention to growing price pressures.
Board member Naoki Tamura said inflation was speeding up and moving faster than the pace he had projected at the BOJ's previous policy meeting on May 1, adding that companies may start to pass on labour costs more substantially by hiking services prices.
"If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability," Tamura told a news conference on Wednesday.
While the U.S. tariffs will weigh on Japan's economy and prices for the time being, consumer inflation is likely to move around the 2% handle through fiscal 2027, he said in a speech earlier in the day to business leaders in Fukushima.
"There is a good possibility our price stability target will be achieved earlier than expected," he said.
The remarks are more hawkish than those of governor Kazuo Ueda, who has stressed the need to pause rate hikes due to "extremely high" uncertainty surrounding U.S. trade policy.
In current forecasts made in May, the BOJ expects underlying inflation to stagnate for some time, before re-accelerating to levels consistent with its price target in the latter half of its three-year projection period through fiscal 2027.
Tamura said the forecasts should be viewed as provisional and susceptible to big revisions depending on developments over U.S. tariff policy.
U.S. tariffs may slow, but not derail, Japan's economic recovery as they mainly hit the manufacturing sector, which makes up just around 20% of gross domestic product (GDP), he said.
But Tamura offered few clues on when exactly the BOJ could raise interest rates, saying the decision will depend largely on how U.S. tariff policy evolves and the impact on the economy.
"We need a bit more information to judge whether underlying inflation has reached 2%," Tamura told the news conference.
"I don't have any pre-set idea. It could come early or it could take a while," he said when asked about the chance of another rate hike this year.
SOLE HAWKISH DISSENTER
The BOJ ended a decade-long, massive stimulus programme last year and in January raised short-term rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target.
While the central bank has signalled readiness to raise rates further, the economic impact of higher U.S. tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase.
Further muddling the policy outlook, consumer inflation has exceeded the BOJ's 2% target for more than three years as companies continue to pass on rising raw material costs.
Japan's consumer inflation has been stronger than expected in April and May, Tamura said, adding the recent increase in food prices may be driven by permanent factors like chronic labour shortages and climate change.
Tamura also said Japan's medium- to long-term inflation expectations have been rising gradually as price hikes become widespread.
"I personally believe focus should be placed on inflation expectations of firms and households, who are the actual drivers of economic activity. I take these expectations to have already reached around 2%," he said.
"When the likelihood of achieving our price stability target increases, or when upside risks to prices grow, we may face a situation where we should act decisively, despite heightened uncertainties," Tamura said in the speech.
The BOJ kept rates steady at 0.5% at last week's policy meeting. A former commercial banker, Tamura was the sole dissenter on the central bank's decision to decelerate the pace of its balance sheet drawdown next year, calling instead to maintain the current pace of bond tapering.
At last week's meeting, BOJ policymakers were divided between those stressing the need to keep ultra-low rates to gauge the impact of U.S. tariffs, and others who highlighted mounting domestic inflationary pressure, a summary of opinions at the meeting showed on Wednesday.
Reporting by Leika Kihara; Editing by Christopher Cushing & Shri Navaratnam
Source: Reuters