Japan’s interest rate decision is facing mounting obstacles as domestic demand remains weak, according to former Bank of Japan committee member Sayuri Shirai. Shirai argues that the central bank could make further rate hikes this year if it wants to retain an opportunity, but lackluster domestic demand makes that path challenging. Shirai contends that inflation falling below the BoJ’s 2% target will complicate future rate hike decisions. While Japan’s wage growth has shown positive signs, persistent inflation is dampening household spending, evidenced by flat private consumption from January to March according to recent government data. The central bank expects inflation to slow to below 2%, likely in the fiscal year starting April 2026, and Shirai believes this will further complicate rate hikes. Economic headwinds are mounting with Japan on the brink of a technical recession, triggered by economic contraction in the first quarter and a decline in exports to the U.S., largely due to increased tariffs.