Tokyo: Japan’s fragile economic recovery may be at risk if the Bank of Japan (BOJ) proceeds with an interest rate hike in December, a senior economic adviser to Sanae Takaichi has warned. The adviser, Takuji Aida chief Japan economist at Crédit Agricole and a member of Takaichi’s economic policy panel cautioned that monetary tightening at this stage could counteract the government’s ongoing fiscal stimulus and threaten growth momentum.
Speaking to Japanese media, Aida emphasized that the country’s economic outlook remains uncertain, with early data pointing to a contraction in the third quarter. He said, “Raising interest rates in December would be quite risky,” noting that both private consumption and export performance have been weaker than expected. His remarks come as policymakers debate whether the BOJ should lift its benchmark rate from the current 0.5 percent, which was last adjusted in January.
Aida stressed that higher borrowing costs could dampen consumer spending and delay the effects of government measures designed to counter inflation and revive household incomes. He recommended that the central bank postpone any rate hike until at least January 2026, when more reliable data on growth and wage trends will be available.
Japan’s government, under the leadership of Prime Minister Fumio Kishida, has launched substantial fiscal packages to support households amid rising living expenses and slowing wage growth. The economic team led by Takaichi is closely monitoring how these measures influence real income recovery.
Aida argued that a December rate increase would “undermine the government’s fiscal efforts,” since tighter monetary conditions could offset the benefits of fiscal spending. He added that coordination between the BOJ and the government is essential to prevent mixed policy signals that might unsettle both businesses and consumers.
Since ending its ultra-loose monetary stance last year, the Bank of Japan has been treading cautiously toward policy normalization. Its policy rate, now at 0.5 percent, is the highest in over a decade but still far below global standards. Analysts have been speculating about another hike in December or early next year to contain inflationary pressures.
However, Aida believes that the central bank should avoid a “rush to normalize” and instead adopt a gradual path based on economic fundamentals. He predicted that if Japan achieves steady growth through fiscal 2026, the BOJ could raise rates incrementally every quarter, targeting a policy rate near 2 percent by 2028. This measured approach, he said, would prevent abrupt shocks to the economy and financial markets.
Japan’s economic trajectory remains a crucial factor in global markets, given its role as one of the world’s largest creditors. Any shift in BOJ policy has significant implications for global capital flows, currency markets, and investor sentiment. The yen has been under pressure for months, hovering near record lows against the dollar, and any rate hike speculation tends to influence its movement sharply.
Market observers note that Aida’s cautious tone may temper investor expectations for a near-term policy move. For businesses and consumers, delaying a rate hike would mean prolonged access to cheaper credit a temporary relief as Japan continues to navigate high import costs and weak domestic demand.
Japan’s policymakers face a delicate balancing act between stimulating growth and containing inflation. While price rises have persisted above the BOJ’s 2 percent target for much of the past year, real wages have failed to keep pace, squeezing households and dampening consumption. The government’s stimulus aims to bridge that gap, but premature monetary tightening could erase those gains.
Aida’s intervention underscores the growing call for policy synchronization between the government and the BOJ. As Japan enters the final stretch of 2025, the question is not merely whether rates should rise but whether the economy is ready to withstand the consequences.