BOJ Keeping Eye on Economy and Takaichi’s ‘Proactive Fiscal Policy’ as It Mulls Possible Future Rate Hike

By Hiroyuki Tanaka and Tomoki Okamoto / Yomiuri Shimbun Staff Writers

21:00 JST, February 26, 2026

The Bank of Japan will have to gauge the right distance from Prime Minister Sanae Takaichi’s administration in determining the timing of rate hikes.

Gov. Kazuo Ueda emphasized in an exclusive interview with The Yomiuri Shimbun on Tuesday that the central bank would keep raising interest rates along with progress in economic and price conditions.

Pledging “responsible and proactive public finances” to win a landslide victory in the latest House of Representatives election, Takaichi is seen to hold a negative stance toward rate hikes, suggesting Ueda faces a difficult decision.

Ueda said the BOJ would scrutinize “the impact of its rate hikes in December and earlier” to decide on the next rate hike.

Specifically, the bank will assess if the hikes have led financial institutions to tighten their lending stance to businesses and individuals or led companies to lose appetite for corporate investment. Ueda also said the bank would collect data to examine whether rising mortgage rates could negatively impact personal consumption in the future.

“At this moment, I have not concluded that we have extremely negative information,” Ueda said.

Even so, the relationship with the Takaichi administration will become crucial for future rate hikes.

Market views largely consider Takaichi to be leery of early rate hikes. For Takaichi, who emphasizes a strong economy, rate hikes that would raise corporate borrowing costs and mortgage rates are seen as a potential drag on economic growth.

Ueda told the Yomiuri that the BOJ considered the impact of the government’s fiscal policy when formulating its outlook for economic activity and prices. He emphasized that the central bank has coordinated with the government in monetary policy operations.

However, when speaking to reporters at the Prime Minister’s Office after his meeting with Takaichi on Feb. 16, Ueda did not mention whether he had told her about an additional rate hike.

On Feb. 20, in her first policy speech since beginning her current term on Feb. 18, Takaichi said she was determined to “break the trend of excessive austerity and insufficient investment in the future.”

Since the launch of her first Cabinet in October, concerns about future fiscal deterioration have simmered in the markets, leading to a rise in long-term interest rates and a persistent weakening of the yen in foreign exchange markets.

Said Ueda, “I am expecting [the government] give attention to ensure market confidence toward medium- and long-term fiscal health.”