Bank of Japan Governor Says ‘Fog’ Over U.S. Tariff Impact Will Not Suddenly Clear

The Yomiuri Shimbun

17:57 JST, August 1, 2025

Bank of Japan Gov. Kazuo Ueda has stated that the impact of U.S. tariffs would not disappear suddenly even with lowered tariff rates.

“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.