BOJ expected to hold interest rates, frightened over U.S Tariffs
The BOJ is widely expected to keep short-term interest rates at 0.5% At the two-day meeting concluding on Thursday.
Quick overview
- The Bank of Japan is expected to maintain steady interest rates amid concerns over the impact of U.S. tariffs on the economy.
- Governor Kazuo Ueda indicated that interest rates could rise if the economy continues to recover and inflation approaches the 2% target.
- The BOJ is likely to downgrade its growth forecasts while signaling that U.S. tariffs won't significantly hinder wage increases necessary for future rate hikes.
- Trade pressures may delay the normalization of policy as major exporters reconsider wage increases due to tariff-induced uncertainty.
The Bank of Japan is anticipated to keep interest rates steady on Thursday and caution against increasing dangers to the delicate economy that might keep policy in a holding pattern, as U.S. tariffs continue to impact confidence.
The discussion may be influenced by what BOJ Governor Kazuo Ueda heard in Washington last week, the International Monetary Fund cut its global growth forecasts, and policymakers worry about further damage to their economies from U.S. trade policy.
Ueda said the BOJ will continue to raise interest rates, provided the economy maintains a steady recovery and keeps inflation on track to reach its 2% target.
While the BOJ is set to downgrade its growth forecasts, it is expected to signal that risks from higher U.S. tariffs won’t undermine wage and cost increases seen as crucial for future rate hikes.
However, the path toward policy normalization may take longer than anticipated as trade pressures push major exporters, which had driven wage increases until this year, to consider slowing or halting raises for another year.
“The balance of risks is on the downside for growth and inflation,” as the tariff-induced uncertainty may discourage firms from maintaining substantial wage increases in next year’s wage talks, a senior IMF official said, anticipating the BOJ to push back the timing of future rate hikes.
The BOJ is widely expected to keep short-term interest rates at 0.5% at the two-day meeting concluding on Thursday.
Trump’s on-off tariffs have sent shockwaves through financial markets and prompted policymakers, including those from Japan, to scramble for concessions from Washington.
Particularly damaging for Japan could be a 25% tariff on cars, a backbone of its export-heavy economy.
“Pre-tariffs, perhaps the sun was beginning to shine a little more brightly in Tokyo,” said Nathan Sheets, Global Chief Economist at Citi Research, referring to rising real wages that fueled consumption.
“But when the corresponding tariffs were imposed, and the auto duties, which are significant as well, we said no rate hikes this year,” he said on Citi’s projection of the next BOJ rate rise.
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