The Bank of Japan (BOJ) is anticipated to maintain its interest rates in the next week’s meeting, while deliberating the potential impacts of the intensifying U.S. trade war on Japan’s export-driven economy, a key factor in the timing of its next rate hike.
The commotion in financial markets and fears of a global economic deceleration arising from President Donald Trump’s aggressive tariff strategies are currently overshadowing Japan’s progress toward achieving the BOJ’s 2% inflation target.
Following a rate hike in January, the BOJ plans to keep its short-term policy rate at 0.5% during a two-day meeting concluding on Wednesday.
The central bank is slated to reassess its quarterly growth and price forecasts at an upcoming session on April 30-May 1, marking the first inclusion of projections extending to fiscal 2027.
A recent Reuters poll indicated that more than two-thirds of economists anticipate the BOJ will raise rates to 0.75% in the third quarter, with July being the most likely period.
Recent developments saw major Japanese firms agree to substantial wage hikes for the third consecutive year during union negotiations, reinforcing the BOJ’s stance that enduring wage increases will sustain inflation around its 2% target.
Many at BOJ perceive the risks to the price outlook as inclined upward, driven by firms transmitting higher raw material and labor costs, which pushed headline inflation to a two-year peak of 4% in January.
Nevertheless, Trump’s shifting tariff narratives have caused market volatility and sparked fears of a U.S. recession that could negatively impact Japan’s export-dependent economy and inhibit corporate spending, analysts caution.
In a recent parliamentary session, BOJ Governor Kazuo Ueda expressed optimism that consumer spending would increase, albeit highlighting significant concerns over overseas economic uncertainties.
With last year’s market downturn, spurred shortly after weak U.S. employment data and the July BOJ rate hike, still fresh in memory, policymakers remain cautious, previously having needed to reassure markets by mitigating expectations of imminent rate increases.
However, the BOJ seems poised to carefully consider overseas risks. A major correction in the U.S. stock market could prompt a delay in the next rate hike, he added.
After concluding a massive stimulus effort last year, the BOJ raised short-term rates to 0.5% in January, believing Japan was approaching a sustainable 2% inflation target. It has signaled a willingness to hike rates further if economic indicators align with projections.
