BOJ to assess economic risks from U.S. tariffs while keeping rates steady

The Bank of Japan is expected to keep its short-term policy rate at 0.5% next week as concerns mount over the impact of President Donald Trump’s tariff moves on Japan’s export-driven economy. 

According to a Reuters report, this stance will be finalized at a two-day meeting ending Wednesday, during which policymakers will weigh the risks of a global slowdown against recent wage and price trends that point toward progress on the central bank’s 2% inflation target.

The threat of escalating trade conflicts has unnerved markets. Analysts warn that if tariffs curb U.S. demand, Japan’s exporters could see slower orders, prompting caution among Bank of Japan officials about the next rate hike.

In January, the central bank raised short-term rates to 0.5%. It ended a large stimulus program around the same time. Officials said they saw signs that inflation was growing. Since then, big Japanese companies have offered robust pay hikes for a third consecutive year, aligning with the Bank’s view that sustained wage gains can keep inflation near the 2% goal. 

Headline inflation rose to 4% in January, which is the highest level in two years. Reuters’ sources said this will push price risks higher. They note that more businesses are passing on higher labor and raw material costs.

Governor Kazuo Ueda has expressed concern in parliament about “uncertainty surrounding overseas economic developments.”

Hiroki Shimazu, who is chief strategist at MCP Asset Management Japan, thinks strong wage growth and solid domestic output could justify a policy tightening in May.

Yet he also cautions that another major jolt in U.S. markets could alter the Bank’s timeline. Should global equities suffer a correction, the Bank of Japan might delay its next rate move to avoid further rattling investors and threatening Japan’s improving growth.

Experts think the central bank will keep rates the same for now. They want to see what happens with trade tensions before making any changes. The Bank will share new forecasts on its April 30 – May 1 meeting. These numbers will go up to fiscal 2027. This data will guide officials on another rate hike.

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