By Megumi Fujikawa

Bank of Japan policy board member Asahi Noguchi struck a more cautious tone about the pace of the bank's future interest-rate hikes, saying it should take "a measured, step-by-step approach."

In a speech to business leaders in Japan's southern prefecture of Miyazaki, Noguchi said the central bank should take the time to examine the economic impact of each rate increase and assess both upside and downside risks before considering the next one.

"This implies that the terminal policy rate, which corresponds to the peak level of the policy interest rate, should not be determined in advance based on factors such as the estimated neutral interest rate," Noguchi added.

The board member also said that downside risks have rapidly heightened after the Trump administration announced tariffs "with unexpected intensity".

"The United States is facing an acute increase in concerns over so-called stagflation, where inflation resurges while the economy contracts," he said, adding that tariffs could weigh on households' real income and consumption through price hikes, and negatively affect employment and investment.

The Japanese central bank has maintained its policy rate at 0.5% since raising it to that level in January. Amid strong uncertainty about U.S. tariff policy and trade negotiations, views are split on when the BOJ will move next. The bank's policy board is scheduled to meet on June 16-17.

"The necessary approach to the future conduct of monetary policy is cautious optimism, keeping a firm eye on growing overseas risks while calmly assessing how the situation unfolds," Noguchi said.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

May 21, 2025 22:24 ET (02:24 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.