Global central banks face new economic realities in Tokyo

Global central bankers will gather in Tokyo on Tuesday for a conference discussing two pertinent matters: economic growth and inflation. The annual symposium, hosted by the Bank of Japan (BOJ) and its affiliated research institute, is Japan’s version of the Federal Reserve’s Jackson Hole summit but heavy on academic and policy gravitas.

The two-day meeting, held at the BOJ’s headquarters in central Tokyo, convenes top officials from central banks, including the US Federal Reserve, the European Central Bank (ECB), the Bank of Canada, and the Reserve Bank of Australia. 

Tariff pressures, inflation, and policy changes

According to sources familiar with the matter, this year’s agenda is titled “New Challenges for Monetary Policy,” which discusses the problems of central bankers globally. Economists believe tailwinds and headwinds have become unpredictable because of the US tariff policies changes under President Donald Trump.

Some central banks are raising interest rates to rein in inflation, but others are cutting rates to support economic growth, fearing Trump tariffs will stifle demand and discourage spending.

The BOJ, even with growing inflationary pressures, has only gradually begun tightening monetary policy after decades of ultra-loose conditions. Japan’s annual inflation rate was steady at 3.6% in April 2025, the lowest level since December. 

The central bank intends to continue lifting rates and trimming bond purchases, but given how US tariffs have changed in the course of two months, some market watchers believe Japan is facing stagflation because the BOJ is “too slow.” 

“While the BOJ may be forced to stand pat for a while, it doesn’t need to ditch rate hikes altogether,” said Nobuyasu Atago, a former BOJ official and current chief economist at Rakuten Securities Economic Research Institute. 

Stubborn inflation and unsteady market growth

In April, Japan’s core consumer inflation hit a two-year high of 3.5%, largely driven by a 7% jump in food prices. Wage growth also showed modest signs of improvement, although households are struggling with the burden of the cost of living. 

“It’s clear the BOJ has failed to achieve its mandate of price stability,” said Atago. “Inflation will always be among worries for the BOJ, which is probably already behind the curve in dealing with domestic price pressures.”

Other central banks, like the US Federal Reserve, were expected to continue rate-cutting cycles. However, inflationary warnings tied to trade policies have forced Powell and the governors to be “more cautious.” 

Last week, US officials insinuated that tariffs may keep inflation on the upside of their 2% target and that they would have to “wait and see” what happens in the coming months before making any rate cut decisions.

The ECB is expected to cut rates in Europe again in June, but internal discussions suggest they could pause cuts thereafter. 

“Tariffs may be disinflationary in the short run but pose upside risks over the medium term,” Isabel Schnabel, a member of the ECB’s executive board, said during remarks at Stanford University on May 9.

Academic insight tells central banks to ‘act on inflation’

This year’s Tokyo sessions will include a review of IMF research exploring “inflation scares” and central banks’ response to supply shocks, a nod to pandemic-induced price distortions. 

A session titled “Reserve Demand, Interest Rate Control, and Quantitative Tightening” could show financial policymakers how to manage liquidity and interest rate expectations during times of market stress.

The IMF paper, published last December, tells the Federal Reserve not to “assume they can ignore inflation” because it would lead to supply shocks. According to the IMF, shocks like those triggered by COVID or trade wars, will push price pressures deeper into the economy than previously assumed.

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