U.S. tariffs trigger global turmoil, and the Bank of Japan may maintain a gradual rate hike stance
Bank of Japan officials stated that despite the uncertainty brought by U.S. tariffs, there is currently no need to change the gradual interest rate hike stance. They believe that tariffs may weaken the Japanese economy and delay the achievement of inflation targets. The Bank of Japan will review the latest data at the policy meeting on May 1 and is expected to maintain interest rates unchanged while possibly lowering price expectations. The yen has reached a seven-month high against the U.S. dollar, oil prices have fallen, and economists believe that the government's exemption of high school tuition may lead to a decrease in the price index
According to the Zhitong Finance APP, informed sources reveal that despite the uncertainty brought by U.S. tariffs, officials from the Bank of Japan believe there is currently no need to change the existing gradual interest rate hike stance. The sources indicate that Bank of Japan officials believe that the tariff actions of the Trump administration and retaliatory actions from other trading partners against the U.S. may weaken the Japanese economy and potentially delay the Bank of Japan's progress toward achieving its inflation target. For now, the overall economic forecasts of Bank of Japan officials remain largely unchanged as they await more data to analyze the impact of U.S. tariffs.
The sources state that given the various scenarios that could arise in the economy, Bank of Japan officials believe it is still too early to incorporate these scenarios into the baseline forecast and make significant changes to the Bank of Japan's policy stance.
According to the sources, at the conclusion of the two-day policy meeting on May 1, officials will make a final decision on the policy interest rate after reviewing the latest data and information. The sources indicate that while the Bank of Japan will present its baseline scenario forecast, it may clearly state that the economic outlook remains uncertain due to the uncertainty brought by tariffs.
The market generally expects the Bank of Japan to maintain interest rates at the policy meeting.
The sources say that in the face of various risks to the economy and inflation, the Bank of Japan has been considering what actions would be appropriate in the worst-case scenario.
According to informed sources, the Bank of Japan may also consider lowering its price expectations in the quarterly economic report released at the end of the policy meeting. This change would stem from the strengthening of the yen, falling oil prices, and potential economic weakness. The Bank of Japan may set its first forecast for core inflation in fiscal year 2027 at around 2%.
On Monday, the yen reached a seven-month high against the dollar, having appreciated about 11% since the Bank of Japan released its economic outlook report in January. During the same period, oil prices have fallen by about 13%. The Japanese government has also decided to essentially waive high school tuition fees starting from this fiscal year, and economists believe this move could lower the price index by about 0.2 percentage points.
Given Japan's heavy reliance on imported energy and goods, the movement of the yen has a significant impact on the Japanese economy.
The sources indicate that Bank of Japan officials may also discuss lowering the economic growth forecast for this fiscal year from 1.1%. Barclays economists expect the economic growth forecast to be revised down to around 0.5% considering the impact of tariffs