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, sparking concerns about a potential full-scale trade conflict and a worldwide economic downturn.
In addition to its immediate effects on international 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 measures will probably put downward pressure on both global and Japanese economies." He further stated that the announcement of these tariffs has increased uncertainty regarding future prospects.
The effect on Japan’s inflation was more difficult to pinpoint since the tariffs might reduce prices by slowing growth, yet they could also potentially boost inflation by interfering with supply chains, according to him.
"We want to examine the effect of these tariffs on both domestic and international economic and pricing trends, and we will utilize this analysis when formulating our monetary policies," 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 increased likelihood of core inflation reaching its 2% objective.
"At every policy meeting, we will review our economic and price projections without any bias to determine their likelihood of being realized," Uchida further explained in the context of setting monetary policy.
The Bank of Japan’s next policy meeting is scheduled for April 30-May 1, where the board will also release updated quarterly projections for economic growth and inflation spanning until fiscal year 2027.
MIXED DATA
New data reveals a conflicting scenario for Japan’s economy. According to the Bank of Japan's "tankan" survey released on Tuesday, the outlook for large manufacturers declined to a twelve-month low over the quarter ending in March, indicating that intensifying trade disputes had started impacting the country’s export-driven economic environment.
However, the sentiment of non-manufacturing companies rose to a level not seen since 1991, and businesses anticipate increasing their capital expenditures by 3.1% during the present fiscal year, which concludes in March 2026, according to the survey.
Ueda mentioned that the overall optimism within businesses was still upbeat, with forecasts for investment expenditures showing greater strength compared to those in the corresponding timeframe from earlier years.
According to Ueda, the tankan aligns with our belief that Japan’s economy is experiencing a moderate recovery.
However, he noted that the survey, collected from February 26 to March 31, may not completely reflect the effects of Trump's tariff announcements.
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 was implemented on Thursday in the U.S., significantly impacting the Japanese automotive sector, which contributes approximately 3% to the nation’s GDP.
Even as Trump's tariffs cast uncertainty over the economic forecast, the BOJ similarly grapples with escalating inflation pressures stemming from consistent rises in food costs. Core consumer inflation reached 3.0% in February, surpassing the BOJ’s 2% objective for the 35th consecutive month.
Ueda mentioned that food prices are influenced by numerous factors, noting that the yearly rise in the price of rice is anticipated to decelerate progressively.
"We pay close attention to examining how the pricing of commonly purchased household items might impact consumer attitudes 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.
BOJ policymakers have indicated their willingness to continue increasing interest rates if they are persuaded that Japan will experience sustained inflation at approximately 2%, supported by robust wage growth.
A survey conducted in March indicated that numerous analysts anticipate the Bank of Japan’s subsequent interest rate increase will occur during the third quarter, with July being the most probable month for this change.
(Reported by Leika Kihara; Edited by Himani Sarkar, Muralikumar Anantharaman, and Jamie Freed)