The Bank of Japan (BOJ) yesterday revised down its growth forecasts and held interest rates steady, warning that trade tariffs were fueling global economic uncertainty.
BOJ Governor Kazuo Ueda said that it was difficult to assess the impact of the sweeping levies imposed by US President Donald Trump and retaliatory measures by affected nations.
“The level of uncertainty will be significant,” Ueda said. “Even when the overall framework of the tariffs is decided, it will still be the implementation of tariffs of an unprecedented scale.”
Photo: Bloomberg
Trump’s hardball campaign to rectify what he says are unfair trade imbalances includes tariffs on trading partners, and imports such as steel and automobiles.
The BOJ said it now expects Japan’s GDP to rise 0.5 percent this fiscal year, which started in April, down from its previous estimate of 1.1 percent.
In the next fiscal year, GDP is expected to expand 0.7 percent, down from its previous forecast of 1.0 percent.
“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,” it said.
The BOJ’s decision to stand pat on interest rates following a two-day policy meeting had been widely expected. Its key rate is still much lower than the US Federal Reserve’s 4.25 percent to 4.5 percent and the Bank of England’s 4.5 percent.
UBS Group AG economists said ahead of the BOJ policy meeting that “market fragility and uncertainty in the global economy due to the US tariff/trade policies” would lead the bank to hold rates, while Capital Economics Ltd analysts said more interest rate increases could still be on the table later this year.
Japanese tariff talks envoy Ryosei Akazawa was to hold a second round of negotiations later yesterday 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 policymakers in hiking interest rates,” Sumitomo Mitsui Trust Holdings Inc senior strategist Katsutoshi Inadome said.
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