The Bank of Japan hints that patience is needed for interest rate hikes, closely monitoring U.S. tariffs and wage growth trends

According to the Zhitong Finance APP, on October 6, 2025, the Bank of Japan maintained a cautiously optimistic view on the economic outlook in its latest regional economic quarterly report, but warned that the impact of U.S. tariffs on corporate profits still carries lingering uncertainties, suggesting a preference to wait for more data before raising interest rates.

The report indicated that the Bank of Japan's assessment of eight regions remains "the economy is moderately recovering or rebounding," but it downgraded the assessment for one region. Managers from regional branches pointed out in meetings that the uncertainty surrounding tariff impacts persists, leading some companies to postpone spending plans.

Masaki Kazuhiro, the head of the Bank of Japan's Osaka branch, stated at a press conference on the same day that the upward trend in wages may continue due to structural labor shortages, but the actual impact of U.S. tariffs on corporate profits has only just begun to emerge, making next year's wage negotiation outcomes difficult to predict. He further emphasized, "It is currently difficult to determine when we will have a clearer understanding of the impact of tariffs."

According to the schedule, the Bank of Japan will hold its next policy meeting from October 29 to 30, and this regional economic assessment will be one of the key reference factors in deciding whether to raise interest rates or maintain the 0.5% rate. Bank of Japan Governor Ueda Kazuo has also publicly stated that more data needs to be carefully reviewed to confirm whether companies can withstand the impact of U.S. tariffs and to continue promoting wage growth and capital expenditure.

In the summary of the quarterly meeting of regional branch managers, the Bank of Japan noted that some regional companies reported that if U.S. tariffs lead to a significant decline in profits, they may need to curb wage growth; however, companies in other regions believe that factors such as labor shortages, minimum wage increases, and recent food cost rises still require continued wage increases. Although U.S. tariffs exert pressure on exports and output, demand for artificial intelligence-related orders remains strong in some regions, providing certain support.

The report also mentioned that many companies plan to continue increasing capital expenditures to optimize operations and meet information technology needs, but some companies have chosen to postpone or review spending plans due to tariff uncertainties.

Historically, the Bank of Japan ended its decade-long large-scale stimulus policy last year and raised interest rates to 0.5% in January this year, primarily based on Japan's imminent achievement of the 2% inflation target. Ueda Kazuo had previously stated that if Japan's economy stabilizes inflation under sustained wage growth and domestic demand, the likelihood of continued interest rate hikes would increase.

It is understood that on October 4 local time, the results of the ruling Liberal Democratic Party's presidential election were announced, with Sanae Takaichi defeating several competitors, including Shinjiro Koizumi, to successfully become the new president of the Liberal Democratic Party. Takaichi advocates for fiscal expansion and a politically right-leaning stance and is seen as a disciple of the late Prime Minister Shinzo Abe. She called for maintaining an accommodative monetary policy, believing that the Bank of Japan should not raise interest rates.

Strategists pointed out that Takaichi's supportive stance on stimulus plans is expected to boost the stock market but may simultaneously put pressure on the yen. Strategists also indicated that expectations regarding the Bank of Japan's policy may support short-term government bonds, while longer-term bonds may be hindered by concerns over increased fiscal spending