Japan faces unique uncertainty amid global policy shifts
The Bank of Japan (BOJ) must tread carefully in its efforts to normalize monetary policy, said Assistant Governor Seiichi Shimizu on Thursday. Speaking at a seminar hosted by the Institute of International Finance in Washington, Shimizu cited Japan’s unfamiliarity with positive interest rates and lingering low inflation expectations as key sources of uncertainty.
“Inflation expectations are still below 2%, so we have to lift up expectations and continue to support economic activity,” Shimizu stated, highlighting the contrast between Japan and other advanced economies where long-term inflation expectations are more stable.
Japan’s inflation outlook still lags global peers
Unlike the U.S. and Europe, where inflation has been persistently high, Japan has only recently begun to see inflation approach the BOJ’s 2% target. Shimizu explained that even modest rate hikes could have unpredictable effects in a country that has long operated under ultra-low interest rates.
“We don’t know how exactly the economy will react,” Shimizu warned. “This is another type of uncertainty we are facing now,” adding that caution is critical as the BOJ evaluates the impact of its policy decisions.
BOJ’s policy shift marks end of an economic era
The BOJ began exiting its decade-long ultra-loose monetary stance in early 2024, increasing its key interest rate to 0.5% in January. The move marked a historic pivot from the radical stimulus program launched in 2013 aimed at reviving growth and ending deflation.
BOJ Governor Kazuo Ueda has maintained that further rate hikes are possible but emphasized the need for gradual action. The central bank is also monitoring external risks such as U.S. tariffs and their effects on Japan’s export-driven economy.
Next steps hinge on economic confidence
“If we are sufficiently confident about the future path of the economy, we can proceed with normalization of policy,” Shimizu said, noting that the central bank will reassess its outlook during the upcoming policy meeting scheduled for October 29–30.
As global central banks deal with trade policy shocks and shifting inflation dynamics, Japan’s cautious stance underlines its unique position in the global monetary landscape.
