U.S.-Japan Talks Avoid Yen Exchange Rate, BOJ Likely to Cut Growth Forecasts Amid Uncertain Rate Hike Prospects

TradingKey - The United States and Japan have begun negotiations on tariff-related issues, with statements from President Donald Trump and the Japanese delegation causing fluctuations in the yen exchange rate. Although Bank of Japan (BOJ) Governor Kazuo Ueda has reiterated the possibility of a rate hike, escalating tariff tensions could pose a significant obstacle — especially as GDP growth forecasts are likely to be revised downward.

On Wednesday, April 16, U.S. President Donald Trump held his first meeting with Japanese Minister of Economic Revitalisation Ryosei Akazawa. Trump stated that the talks had made "big progress."The yen rebounded following his comments, as Trump has repeatedly attributed t  the U.S.–Japan trade deficit to the yen's depreciation. On April 16, the dollar-yen (USD/JPY) pair fell by 0.91% to 141.93.

However, early on April 17, Akazawa clarified that exchange rate issues were not discussed, prompting a pullback in the yen, which is now trading at 142.56.

Akazawa added that Trump described negotiations with Japan as a top priority. The Japanese delegation has proposed a comprehensive review covering reciprocal tariffs, automobiles, steel, aluminium products, and more.

Overnight, hawkish remarks from Federal Reserve Chair Jerome Powell pressured semiconductor stocks. However,  Akazawa’s comments provided some support to Japanese equities, helping them avoid mirroring the  U.S. market's decline. 

On the morning of April 17, the Nikkei 225 rose nearly 1%, while the TOPIX index, after opening lower, rebounded. Auto stocks such as Honda Motor Co. gained, alongside advances in shares of Ishikawajima-Harima Heavy Industries, Kawasaki Heavy Industries, and Mitsubishi Heavy Industries.

On Thursday, BOJ Governor Kazuo Ueda acknowledged that uncertainty surrounding U.S. policies—particularly tariffs—has sharply increased. He emphasized that the central bank would continue to assess developments at each policy meeting without preconceptions, closely monitoring their impact on the Japanese economy.

Ueda reiterated that if economic and price trends evolve in line with expectations, the BOJ remains prepared to proceed with interest rate hikes.

However, according to a Reuters report citing sources familiar with the matter, the BOJ is likely to significantly downgrade its growth forecast for the current fiscal year in its upcoming quarterly economic outlook, due on May 1. In January, the BOJ had projected annual GDP growth of 1.1% for fiscal year 2025.

Sources indicated that while it is clear  U.S. tariffs will negatively impact the  Japanese economy, it remains uncertain whether the damage will be substantial enough to derail the upward inflation trend—an essential condition for the BOJ to continue tightening monetary policy.