Bank of Japan Considers Policy Action Amid U.S. Tariffs

By Leika Kihara

TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda indicated that the central bank may need to take policy action if U.S. tariffs negatively impact the Japanese economy, as reported by the Sankei newspaper on Wednesday. This statement suggests a potential pause in the bank’s rate-hike cycle.

Ueda remarked that since February, the risks associated with U.S. President Donald Trump’s policies have come closer to the negative scenario previously envisioned by the BOJ. He added that these developments have already started to affect corporate and household confidence.

The BOJ will continue to raise interest rates at an appropriate pace, assuming economic and price developments align with their projections. However, Ueda stated, “We will scrutinise without pre-conception the extent to which U.S. tariffs could hurt the economy. A policy response may become necessary. We will make an appropriate decision in accordance with changes in developments.”

The next BOJ policy meeting is scheduled for April 30-May 1, where it is broadly expected that interest rates will remain steady. The bank will also release updated quarterly growth and price forecasts to provide insights into its monetary policy outlook.

Ueda noted that higher U.S. tariffs are likely to adversely affect Japanese exports and could dampen household sentiment due to increased uncertainty regarding the economic outlook. “While stock and exchange-rate developments are hard to predict, we’ll carefully monitor how they affect the economy,” he stated.

Regarding the price outlook, Ueda commented that domestic food inflation is expected to moderate, while real wage growth is projected to turn positive and continue rising from mid-year.

He further expressed that there are both upside and downside risks to the price outlook. Persistent food inflation or supply disruptions caused by U.S. tariffs could lead to higher-than-expected prices, whereas an increased cost of living might cool consumption and limit further price rises, he suggested.

The BOJ intends to consider not only data but also surveys of companies when preparing the new quarterly forecasts due on May 1, Ueda told Sankei.

After concluding a decade-long massive stimulus program last year, the BOJ raised interest rates to 0.5% in January, believing Japan was on the verge of sustainably achieving its 2% inflation target.

Despite Ueda signaling the BOJ’s readiness to continue raising interest rates, Trump’s imposition of higher U.S. tariffs has complicated the bank’s decision on the timing and extent of potential interest rate increases. However, most analysts still anticipate that the BOJ’s next action will be a rate hike rather than a cut.