Bank of Japan policymakers discussed the possibility of resuming interest rate hikes, with one member suggesting a hike this year. Some board members warned of uncertainty due to U.S. tariffs, while others welcomed Japan’s trade deal with the U.S. as “great progress,” heightening expectations for a rate hike. The central bank kept rates steady at 0.5% in July but revised up its inflation forecasts and offered a less gloomy outlook on the economy, maintaining market expectations for a rate hike this year.

The BOJ is monitoring the impact of U.S. tariffs, with one member stating the impact on Japan’s economy could be minimal if the U.S. economy withstands the hit better than anticipated. Some board members signaled the possibility of resuming interest rate hikes, with a focus on raising rates in a timely manner to avoid causing significant damage to the economy.

Hawkish signals from some board members weighed on Japanese government bonds, with the yield on the 10-year note rising. Policymakers expressed concerns about growing inflationary risks and emphasized the need to place more emphasis on the upside risks to prices. There is a growing belief within the BOJ that conditions for raising Japan’s rates could fall into place in the coming months.

The caution over inflation risks is in line with a quarterly report released after the July meeting, which highlighted the risks of persistent food price rises leading to broad-based inflation. The change in tone reflects the BOJ’s growing confidence in Japan’s economic recovery, thanks to the recent trade deal with the U.S. A Reuters poll showed a majority of economists expect another rate hike by year-end.

While consumer inflation has exceeded the BOJ’s target for more than three years, Governor Kazuo Ueda has been cautious in hiking rates due to underlying inflation remaining below 2%. Some board members called for a shift in communication away from underlying inflation to actual price moves and their outlook, as well as inflation expectations. The government representative also emphasized the need to pay attention to risks from price rises.

Read more at Yahoo Finance: BOJ debated chances of resuming rate hikes, July summary shows