Bank of Japan to Keep Eagle Eye on Impact of U.S. Tariffs; Analysts Try to Predict Timing of Next Rate Hike

By Shinichi Ikeda and Yuma Ikeshita / Yomiuri Shimbun Staff Writers

16:41 JST, March 20, 2025

The Bank of Japan’s resolve to closely monitor the possible impact of U.S. tariffs on Japan’s economy prompted it to keep interest rates unchanged at 0.5% on Wednesday. Analysts are split over when the central bank’s next raise will be.

At a press conference following the bank’s Monetary Policy Meeting, Bank of Japan Gov. Kazuo Ueda indicated the effects of the high tariff policy of the administration of U.S. President Donald Trump on Japan’s economy and consumer prices would need to be carefully assessed. “Overseas uncertainty has heightened sharply,” Ueda emphasized.

Given the possibility that recent increases in rice prices could push up consumer prices more than expected, markets are keenly trying to determine the timing of decision to hike interest rates.

The U.S. administration has proposed slapping additional tariffs on automobiles imported from all nations and regions on April 2. If this plan goes ahead, the business performance of Japanese automakers could suffer, and the entire Japanese economy could come under downward pressure. Ueda said the higher U.S. duties could also affect the Japanese economy through their impact on the global economy or more directly through trade routes.

Ueda also pointed out that “some data” suggested the uncertainty was starting to affect consumer sentiment in the United States. The governor indicated the bank would analyze the risks to Japanese economic activity, including the psychological impact on companies and household finances.

Wage, price trends ‘on track’

Domestic wage and price trends were “on track,” according to Ueda. Since April 2022, the year-on-year rate of increase in the national consumer price index, excluding fresh food, has continued to exceed the central bank’s target of 2%. The CPI in January climbed to 3.2% due to the rising price of rice and other items.

Ueda said the bank “recognized” the negative impact of ongoing price increases on people’s day-to-day lives. However, he also insisted the underlying rate of inflation, in which temporary variable factors are excluded, would need more time to reach to 2%.

This year’s shunto spring wage negotiations have so far resulted in agreements for considerable wage increases. It is also possible that household budgets and corporate price outlooks could exceed forecasts. Ueda said some policy board members at Wednesday’s meeting commented that they wanted to keep closely monitoring the risk of surging prices.

Market observers split on timing

Following Ueda’s press conference, market observers were divided over the timing of the next rate hike by the central bank.

Hiroshi Suzuki, chief foreign exchange strategist at Sumitomo Mitsui Banking Corp., predicted the bank could decide to raise rates in July after scrutinizing the impacts of the U.S. tariffs. Suzuki explained his belief that the bank would stand pat on rates at its next Monetary Policy Meeting, which is scheduled for April 30 and May 1. Lifting rates at that meeting “could be taken [as a sign of] an acceleration in the pace of rate hikes,” Suzuki said.

Izuru Kato at Totan Research Co. predicts the BOJ could take action before July.

“At his press conference, Mr. Ueda emphasized more than before the risk of being behind the curve in dealing with cost-of-living increases,” Kato said. “I think it’s possible the bank could decide to lift interest rates by the time of its meeting on June 16 and 17.”