Japan plans swift stimulus amid U.S. tariffs, inflation risks

Japan plans swift stimulus amid U.S. tariffs, inflation risks

Japan's government is set to pledge "nimble policy action" in its upcoming economic and fiscal policy guidelines, according to a draft seen by Reuters. This move is in response to the impacts of U.S. tariffs and high inflation on household finances [2]. The draft, which will be finalized by the Council on Economic and Fiscal Policy (CEFP) on June 13, suggests that the government could consider compiling a supplementary budget later this year, depending on economic and price developments [2].

The guidelines will also reiterate expectations for the Bank of Japan (BOJ) to achieve its 2% price target in a sustainable and stable manner through appropriate monetary policy. The pursuit of fiscal discipline will not limit policy options, giving room for swift policy responses such as stimulus measures when necessary [2].

The Japanese economy has been recovering modestly, but the government acknowledges the need to closely monitor downside risks posed by U.S. tariffs and rising consumer prices. The guidelines emphasize the importance of wage growth and investment to drive a growth-oriented economy [2].

Japan is currently engaged in negotiations with the U.S. over auto tariffs, with the fourth round of talks scheduled for May 30 in Washington, D.C. The Japanese government aims to withdraw the U.S. auto tariffs through negotiations, and has proposed purchasing billions of dollars worth of U.S.-made semiconductors, including those from Nvidia, to strengthen supply chains and secure economic security [1].

The U.S. trade deficit with Japan last year was $68.5 billion (about 94 trillion won), which is 10% of the total deficit. The U.S. has reportedly held the position that it can only discuss additional tariffs (14% in Japan) applied differently by country and cannot adjust tariffs by item, such as automobile tariffs [1].

Japan's Minister of Customs, Ryosei Akazawa, is set to depart for the U.S. on May 29 to hold the fourth round of tariff negotiations with U.S. Treasury Secretary Scott Bessant. The Japanese government is considering additional proposals to gain U.S. understanding and is prepared to negotiate again with the U.S. minister in time for an international conference in France next week [1].

The Japanese government plans to continue intensive negotiations with the U.S. side with the aim of partially agreeing on tariffs at the U.S.-Japan summit to be held in Canada in the middle of next month [1].

References:
[1] https://www.mk.co.kr/en/world/11328422
[2] https://www.investing.com/news/economy-news/japans-government-to-pledge-nimble-fiscal-action-in-policy-guidelines-4066416