FX.co ★ BoJ Stays Cautious on U.S. Tariffs, Keeps Rate Hike Path

The Bank of Japan (BoJ) is exercising vigilance in light of unpredictable U.S. tariff policies, as detailed in the summary of their policy meeting held from April 30 to May 1. If high tariffs persist, it may compel Japanese exporters to reorganize their operations by relocating production facilities to the U.S. and optimizing their supply chains. This could negatively impact small and medium-sized enterprises, which constitute 70% of Japan’s employment sector. Despite forecasts suggesting that inflation will remain close to the 2% target through fiscal year 2027—driven by wage increases and a constrained labor market—U.S. tariffs pose a risk by potentially dampening Japan’s economic growth and consumer confidence, thereby applying downward pressure on core inflation. The BoJ views the impact of tariffs as temporary disturbances with minimal long-term effects on inflation or potential growth. Nonetheless, it underscores the necessity of closely monitoring risks and uncertainties. Should the current economic and pricing projections persist, the central bank intends to continue its steady, controlled approach to increasing interest rates, while retaining flexibility to adapt to evolving circumstances.