By Leika Kihara
TOKYO () – Bank of Japan Governor Kazuo Ueda stated on Friday that the central bank would carefully examine the effects of U.S. tariffs on Japan’s economy during their monetary policy decisions, cautioning that these increased duties could potentially hinder both global and domestic economic expansion.
Worldwide share values plummeted on Thursday following U.S. President Donald Trump's declaration of extensive tariff measures, which sparked concerns about a potential full-scale trade conflict and a worldwide economic downturn.
In addition to its immediate effect on worldwide commerce, Trump’s tariffs—which stand at 24% for products coming from Japan—might influence business confidence and financial activities by increasing doubt about future economic conditions, according to Ueda.
He informed the parliament that these tariffs are expected to put downward pressure on both the global and Japanese economies through those channels.
The effect on Japan’s inflation was more difficult to determine because the tariffs might lower prices by dampening growth; however, they could also boost inflation by disturbing supply chains, he explained.
"We want to examine the effect of these tariffs on economic and price changes both domestically and internationally, and utilize our analysis in formulating monetary policy," stated Ueda.
At the same parliamentary session, BOJ Deputy Governor Shinichi Uchida stated that the central bank would continue to increase interest rates if there is an elevated risk of core inflation reaching its 2% objective.
"At every policy meeting, we will assess our (economic and price) projections without any bias to determine if they would be met," Uchida further explained in the context of setting monetary policy.
The BOJ next meets for a policy meeting on April 30-May 1, when the board will also issue fresh quarterly growth and inflation forecasts extending through fiscal 2027.
Japan's Nikkei stock average dropped by 1.85% on Friday, adding to its 2.8% decline from Thursday following President Trump’s declaration of retaliatory tariffs.
A 25% tariff on all vehicle imports, previously declared, went into effect on Thursday in the U.S., significantly impacting the Japanese automotive sector, which contributes about 3% to the nation’s GDP.
While Trump's tariffs cloud the economic outlook, the BOJ also faces rising inflationary pressure from steady increases in food prices. Core consumer inflation hit 3.0% in February, exceeding the BOJ's 2% target for the 35th straight month.
Some members of the Bank of Japan’s board have started noticing the increasing cost of living, expressing concerns during their March policy discussion that persistent food inflation might influence overall pricing trends and people's expectations regarding future inflation.
Ueda mentioned that food prices are influenced by multiple factors, noting that the yearly rise in rice costs is anticipated to decelerate progressively.
"We pay close attention to examining how the prices of commonly purchased household items might influence consumer sentiment and inflation expectations," Ueda stated.
The BOJ ended a decade-long, massive stimulus last year and raised interest rates to 0.5% in January on the view Japan was on the cusp of durably hitting its inflation target.
Policymakers at BOJ have indicated their willingness to continue increasing interest rates if they are persuaded that Japan will experience sustained inflation of approximately 2%, supported by robust wage growth.
A poll in March showed many analysts expect the BOJ's next rate hike to come in the third quarter, most likely in July.
(Reported by Leika Kihara; Edited by Himani Sarkar, Muralikumar Anantharaman, and Jamie Freed)