Tariffs prompt Bank of Japan to lower growth forecasts

Japan Today

01-05-2025

By Kyoko HASEGAWA
The Bank of Japan revised down its growth forecasts and held interest rates steady on Thursday, warning that trade tariffs are fuelling global economic uncertainty.
Since taking office in January, U.S. President Donald Trump has embarked on a hardball campaign to rectify what he says are unfair trade imbalances.
His administration has imposed hefty levies on trading partners and imports including steel and automobiles.
"The introduction of wide-ranging tariffs is expected to impact global trade activity," Japan's central bank said, without mentioning the United States directly.
"Heightened uncertainties regarding policies including tariffs are likely to have a large impact on business and household sentiment around the world and on the global financial and capital markets."
The BOJ said it now expects Japan's gross domestic product (GDP) to rise 0.5 percent in fiscal 2025, which started in April -- down from its previous estimate of 1.1 percent.
In fiscal 2026, it expects GDP in the world's fourth largest economy to expand 0.7 percent, down from 1.0 percent previously forecast.
"Japan's economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors," the bank said.
However, "factors such as accommodative financial conditions are expected to provide support" and "thereafter, Japan's economic growth rate is likely to rise".
The BoJ's decision to stand pat on interest rates -- holding them at around 0.5 percent -- following a two-day policy meeting had been widely expected.
Bank officials began lifting borrowing costs last year after nearly two decades of ultra-loose monetary policies aimed at kick-starting torpid economic growth in Japan.
Its key rate is still much lower than the U.S. Federal Reserve's 4.25-4.5 percent and the Bank of England's 4.5 percent.
Masamichi Adachi and Go Kurihara of UBS said ahead of the BoJ policy meeting that "market fragility and uncertainty in the global economy due to the U.S. tariff/trade policies" would lead the BOJ to hold rates.
Analysts including Marcel Thieliant from Capital Economics said more interest rate increases could still be on the table later this year.
"We believe that the trade war won't be as damaging as feared and we're sticking to our forecast of another rate hike in July," Thieliant said.
Japanese tariff talks envoy Ryosei Akazawa will hold a second round of negotiations later Thursday in Washington, seeking to secure relief from the trade levies.
"Fruitful negotiations between Washington and Tokyo to mitigate the impact of tariffs on exporters may help Japanese policy makers in hiking interest rates," Katsutoshi Inadome at SuMi TRUST said.
Eyes are now on bank governor Kazuo Ueda's press conference Thursday afternoon and how he addresses the question of accelerating Japanese inflation.
Excluding fresh food, consumer prices rose 3.2 percent in March year-on-year compared to 3.0 percent in February, above the BOJ's longstanding target of two percent.
© 2025 AFP