Bank of Japan to Maintain Interest Rate Hike Stance Amid Tariff Uncertainty
2min read The recent imposition of tariffs by the United States has sparked global turmoil, prompting the Bank of Japan to consider maintaining its gradual interest rate hike stance. Despite the uncertainty brought about by the tariffs, officials at the Bank of Japan believe that there is currently no need to alter their existing policy. They acknowledge that the tariff actions by the Trump administration and retaliatory measures from other trading partners could weaken the Japanese economy and delay the Bank of Japan's efforts to achieve its inflation targets. However, the overall economic forecasts by the Bank of Japan remain largely unchanged as they await more data to analyze the impact of the tariffs.
Officials at the Bank of Japan are cautious about incorporating various economic scenarios into their baseline predictions and making significant changes to their policy stance at this juncture. They are awaiting the outcome of the two-day policy meeting scheduled to conclude on May 1, where they will review the latest data and information before making a final decision on the policy rate. While the Bank of Japan is expected to present its baseline scenario predictions, it may also indicate that the economic outlook remains unclear due to the uncertainty surrounding the tariffs.
Market expectations are that the Bank of Japan will keep interest rates unchanged during the policy meeting. Officials at the Bank of Japan are contemplating the appropriate actions to take in the worst-case scenario, given the various risks to the economy and inflation. They may also consider lowering price expectations in the quarterly economic report to be released at the end of the policy meeting. This adjustment would be driven by factors such as the strengthening of the yen, the decline in oil prices, and potential economic weakness. The Bank of Japan might project the core inflation rate for the fiscal year 2027 to be around 2%.
On Monday, the yen reached a seven-month high against the dollar, appreciating by approximately 11% since the Bank of Japan released its economic outlook report in January. During the same period, oil prices have declined by about 13%. The Japanese government's decision to effectively waive high school tuition fees starting from the current fiscal year is expected to reduce the consumer price index by about 0.2 percentage points, according to economists. Given Japan's heavy reliance on imported energy and goods, the movement of the yen has a significant impact on the Japanese economy.
Officials at the Bank of Japan may also discuss lowering the economic growth forecast for the current fiscal year from 1.1% to around 0.5%, considering the impact of the tariffs. The Bank of Japan is expected to maintain its gradual interest rate hike stance, despite the potential economic slowdown caused by the tariffs. The Bank of Japan's decision to keep interest rates unchanged during the policy meeting is in line with its commitment to achieving its inflation target of 2%.
