Bank of Japan Governor Says ‘Fog' Over U.S. Tariff Impact Will Not Suddenly Clear
'It would not be like the fog clears all at once,' Ueda said at a press conference Thursday shortly after the central bank decided at its Monetary Policy Meeting to keep its policy interest rate unchanged at 0.5%.
Thus, he indicated that given the impact of tariffs will likely remain for a certain extent for the time being, the central bank intends to consider the timing of raising rates by carefully monitoring economic and price trends.
The new U.S. tariff measures on imports from Japan, as agreed on through bilateral negotiations, include so-called reciprocal tariffs of a total of 15%, lower than previously expected. Regarding the tariff measures, Ueda said, 'It remains to be seen what impacts will be generated.'
However, he also said, 'The possibility of the economy making a move like falling off a cliff has diminished,' referring to the decline in uncertainty about the Japanese economy's outlook after the tariff agreement.
The BOJ intends to monitor whether the current pattern of wages and prices rising in tandem will continue. At the press conference, Ueda said, 'Whether the mechanism whereby wages and prices positively influence each other will continue will be a major factor in our decision-making.'
In its new Outlook for Economic Activity and Prices report, released after the meeting, the central bank revised its forecasts upward for the consumer price index, excluding fresh food, for fiscal 2025-27, from its previous report released in May. The forecast for fiscal 2025 was raised to 2.7% to reflect the impact of rising prices of rice and other food items.
The bank has also said that 'underlying CPI inflation,' excluding factors affecting temporary price changes, will likely achieve the 2% target sometime between the second half of fiscal 2026 and the end of fiscal 2027. The bank may decide to raise rates further if the conditions for achieving the target become apparent. Market participants and experts have suggested that this could happen 'within this year.'
'If recovery in corporate sentiment, particularly in manufacturing, is confirmed as uncertainty about tariff measures is eased, an additional rate hike could take place as early as October,' said Yuichi Kodama at Meiji Yasuda Research Institute Inc.
'It is necessary to thoroughly assess the impact of tariffs on both domestic and global economies,' said Takahide Kiuchi at Nomura Research Institute Ltd. 'Given the ongoing high level of uncertainty over the domestic political situation, it is more likely an interest rate hike [to be decided] at the December meeting [of the BOJ Policy Board],' he added.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
3 hours ago
Bridgestone to Sell Carbon Black Biz in Mexico
News from Japan Economy Aug 5, 2025 15:04 (JST) Tokyo, Aug. 5 (Jiji Press)--Bridgestone Corp. said Tuesday it will sell Mexico Carbon Manufacturing SA de CV to Cabot Corp. of the United States for about 70 million dollars as part of the Japanese tire maker's efforts to restructure its carbon black business. The deal is expected to close within three to six months, pending regulatory approval in Mexico. The impact of the sale on Bridgestone's financial forecast for this year is minimal, the company said. In July, Bridgestone announced the sale of its carbon black operations in Thailand to Japan's Tokai Carbon Co. Asahi Carbon Co., based in the city of Niigata, central Japan, will be Bridgestone's only carbon black arm. It will continue to develop and make the material for premium and racing tires. END [Copyright The Jiji Press, Ltd.] Jiji Press
Japan Times
4 hours ago
- Japan Times
A year after Japan's stock meltdown, markets show resilience and promise
A year after an epic rebound in the yen upended currency trading and sent shares tumbling from Tokyo to New York, Japan's stock market has found firmer footing. It's taken two major routs and a significant unwinding of the carry-trade strategy, used by global investors to borrow heavily in the relatively low-yielding yen to buy other currencies offering higher returns. But twelve months on from Aug. 5, 2024, when Japan's stock benchmarks plummeted 12% and the market lost over $670 billion in value following an unexpected rate hike by the Bank of Japan, the broader Topix index is once again hovering near record highs. And while this summer's share climb bears some technical similarities to last July's ill-fated rise, a combination of clearer BOJ messaging, steady corporate reforms and a better-than-feared U.S. tariff deal has market participants betting against a repeat of the 2024 crash. "It looks like a lot more stable of an environment for the market to go higher,' said analyst Pelham Smithers, who runs an eponymous Japan equity research firm in the U.K. "I think there's room for further rate hikes, which it hasn't felt like before.' The yen is still keeping investors on their toes — the currency gained 2% against the dollar on Friday following disappointing U.S. employment data. The Topix and Nikkei 225 lost over 1% Monday after those statistics stoked recession fears. The yen was trading at around ¥146.75 to the dollar in Tokyo on Tuesday. But the yen's choppiness over the past four weeks is tame compared to its 10% surge over the same period in 2024. And stocks' Monday decline was mild in contrast to their August 2024 collapse, which was also accelerated by weak U.S. jobs data. The relative calm is evidence that investors are finally settling into the new reality of higher Japanese interest rates, said Anna Wu, a cross-asset strategist at investment management firm VanEck in Sydney. "The market has come to a realization that yes, the BOJ will be hiking, but the differentials between the yen and trading pairs, as well as Japan interest rates versus the Fed's rates, are still meaningfully high,' Wu said. That makes another sharp carry-trade unwind unlikely, she added. The newfound acceptance is largely thanks to an improvement in communication by the BOJ, Wu said. Its 15 basis point hike last July caught markets off-guard, sending the yen soaring and global investors rushing to offload carry trade positions. The central bank has since updated its messaging style, ensuring at least one of its board members delivers a scheduled speech and holds a news conference ahead of each policy meeting. For instance, 10 days ahead of its most recent hike in January, BOJ Deputy Gov. Ryozo Himino gave an unusually explicit hint of a raise, with Gov. Kazuo Ueda later backing up the message. The result was telling. Although the quarter percentage point hike to 0.5% was the bank's largest in 18 years, markets were well prepared, and stocks gained in the following week, helped by a rally in banking shares. "The BOJ's decision to raise rates again in January, despite last summer's turmoil, made it clear that the rate hike path will continue,' said Masayuki Koguchi, executive chief fund manager at Mitsubishi UFJ Asset Management. "It's become easier to envision future rate hike scenarios,' he said. Plus, having bounced back from last summer's meltdown and a tariff-fueled rout in April, Japan's equities now look more resilient against potential shocks, analyst Smithers said. "We got out a bit of hot money with the two flash crashes,' he said. "The people in the market right now are the ones who believe in Japan.' A large chunk of those "believers' are foreign investors, drawn to Japan's shares by a record level of corporate share buybacks and hopes that governance reforms will unlock long-term value for shareholders. "Governance reforms and shareholder returns, far from peaking, are scaling new heights,' said Sunny Romo, an investment director of Japanese equities at M&G Investments. That signals room for Japan's stocks to climb higher, especially as global investors look to diversify outside the U.S., she added. Domestic market watchers see potential for more upside, too. Expectations that Japan's ruling parties may give in to opposition calls for consumption tax cuts after a recent election setback are fueling hopes of a boost for retail and other domestic-oriented sectors. "The market is in a different place now than it was a year ago,' said Kazuhiro Sasaki, head of research at Phillip Securities Japan. "Investors have things to look forward to, especially in domestic demand-driven stocks, if the government pursues fiscal expansion.' Optimism is shared by strategists at Goldman Sachs Japan and Bank of America Securities who have hiked their forecasts for the Topix and Nikkei in recent weeks, citing hopes that U.S. tariffs won't derail Japan's economy as much as feared due to a truce limiting levies to 15%. However, the trajectory of Japanese equities still hinges on the yen's stability, and in a world of tariff-driven market swings that's no small caveat. Lingering trade worries and uncertainty around Prime Minister Shigeru Ishiba's fate could still boost safe-haven demand for the yen, stoking volatility, said Klaus Wobbe, CEO of Intalcon Asset Management. "I think the yen could strengthen again to below ¥140, especially if the Fed cuts in the fourth quarter and the BOJ tightens,' said Wobbe. "That would be an indicator that the true unwind is underway. ¥140 is the last line of defense.'
Japan Times
4 hours ago
- Japan Times
BOJ rate hike in September or October is 'desirable,' MUFG chief says
The chief executive of Japan's largest bank wants the Bank of Japan to raise its policy rate as early as the next meeting, given the outlook for higher inflation in the country. "Our official company view sees March next year as a possible timing of the rate hike. But personally, I think September or October is quite possible,' Hironori Kamezawa, CEO of Mitsubishi UFJ Financial Group, said in an interview. A rate hike in either month is "desirable' due to strong inflation, he said. That marks a rare public comment from a Japanese bank chieftain on the central bank's policy path. Rising interest rates are one reason why Japan's biggest banks have been reporting bumper earnings since the central bank ended its massive monetary easing program last year. MUFG on Monday posted first-quarter results that put it on course to achieve its target of a record ¥2 trillion ($13.5 billion) in annual profit. The BOJ last week kept its policy rate unchanged, at 0.5%, while raising inflation projections for all three years in its outlook period. Central bank watchers have brought forward their forecast for when they expect the next rate hike, with 42% of 45 economists surveyed by Bloomberg anticipating the move to come in October, now that Japan has reached a trade deal with the U.S. The 15% tariff rate imposed by the administration of U.S. President Donald Trump "is not a small number, and many sectors and companies are likely to be affected,' Kamezawa said. "But it gives us a clearer outlook than before.' Sustained wage growth is also key for the BOJ's case to raise rates, and Kamezawa said Japanese companies are likely to keep increasing pay as they grapple with a labor shortage. Still, he cautioned that Gov. Kazuo Ueda and his policy board may yet keep their wait-and-see stance if economic data in the coming months turn out to be weak. In that case, the next rate hike could be around March next year, the CEO said. Kamezawa, 63, also said MUFG is in no hurry to buy Japanese government bonds. "Rising yields are an alarm bell in the policy debate over fiscal expansion,' he said. "I think the trend will continue for a while.' MUFG's net income fell 1.8% from a year earlier to ¥546.1 billion in the three months ended June 30. That beat analysts' estimates. While Kamezawa attributed half of its performance in recent years to the tailwinds of higher interest rates, a weaker yen and sales of stakes in client companies, he said the bank has built up diversified profit drivers in Japan and overseas. Even so, "we aren't seen as a growth stock,' he said, stressing the need to convince investors of its expansion prospects to push up its share price. MUFG's shares have climbed about 11% this year, after gaining more than 35% in each of the preceding four years. MUFG has set a target of 12% return on equity to be achieved in the medium to long term, up from around 10% recently. The measure of profitability was 10.8% last quarter. According to Kamezawa, MUFG has to earn an extra ¥1.2 trillion in net operating profit to generate the additional 2 percentage points of return on equity. Half of that profit gain will come from boosting its investment banking business as well as making acquisitions. "We're thinking about expanding the securitization business and taking more risks in project finance,' he said of the investment banking side. On the acquisition front, Tokyo-based MUFG has been purchasing financial technology startups in Asia outside Japan in recent years, after buying or taking major stakes in traditional commercial banks in Thailand, Indonesia, the Philippines and Vietnam. Kamezawa said the bank is actively looking for more acquisition opportunities in the fintech field because "digital finance' is likely to drive growth in Asia. It can afford multibillion dollar deals, he added. Globally, MUFG continues to explore opportunities to buy asset management companies and investor services firms, he said. Among countries, he said India is a "key target' for MUFG. "We would definitely want to tap into the country's growth.' MUFG already has sizable operations in the South Asian country, employing about 4,000 people in 17 locations. "We earn from the corporate side now, but if we want to benefit from India's growth, we can't do it without being in retail and digital businesses,' Kamezawa said. While the CEO didn't rule out the possibility of buying a commercial bank in India, he said regulatory hurdles are high. "In that sense, non-bank financial firms are more likely.' Kamezawa stressed that whatever it acquires, MUFG would need to team up with a good local partner to do retail finance business in India. "Without one, we won't do it,' he said.
