Economists warn that a BOJ rate hike delay could follow the July 20 House of Councillors election due to political uncertainty.
The ruling coalition, led by Prime Minister Shigeru Ishiba, faces growing pressure and potential post-election instability. This creates new problems for the Bank of Japan, already cautious due to global economic challenges.
U.S. President Donald Trump’s aggressive tariffs have stalled Japan’s monetary normalization, economists say. Ryuichiro Hashimoto of Barclays Japan said inflation will likely rise further, raising the risk of policy inaction.
Core consumer prices jumped 3.7 percent year-on-year in May, the largest increase since January 2023. The rise was fueled by higher food prices, especially for rice, adding to households’ financial burden.
Despite previous rate hikes, the BOJ held its key rate at 0.5 percent during its June policy meeting. That marked the third straight meeting without a change, as export concerns weigh on Japan’s economy.
With another meeting due shortly after the election, most analysts expect no major policy shift this month. Economist Koichi Fujishiro said a BOJ rate hike delay seems likely based on recent communication strategies.
He added that the BOJ prefers signaling changes in advance, making a sudden hike less probable. The election campaign has focused heavily on inflation and cost-of-living concerns. The LDP and Komeito favor cash handouts, while opposition parties call for consumption tax cuts.
Polls show more public support for tax cuts than cash payments, putting Ishiba’s coalition under pressure. Losing seats in the upper house could weaken Ishiba’s leadership and increase political gridlock. Barclays’ Hashimoto said rate hikes will be hard to implement while stimulus policies dominate the agenda.
If Ishiba loses ground, a leadership challenge could arise, further complicating central bank decisions. Former minister Sanae Takaichi supports continued easing and heavy fiscal spending. The BOJ will meet again in September, but inflation may worsen if the yen remains weak.
Economists caution that another BOJ rate hike delay could raise import costs and deepen Japan’s inflation dilemma.
