The Bank of Japan (BOJ) expects wages and prices to continue rising despite growing concerns about the impact of U.S. tariff policies on Japan’s economy, according to Deputy Governor Shinichi Uchida. In a statement to parliament on Tuesday, Uchida reaffirmed the BOJ’s intention to keep raising interest rates if Japan’s economy and inflation continue to improve after a period of stagnation.
Uchida acknowledged that the uncertainty surrounding U.S. tariffs is likely to slow Japan’s economic growth, but he emphasized that wages are expected to rise as Japan’s labor market remains tight. “Even if inflation and inflation expectations temporarily stagnate, wages are likely to keep increasing,” Uchida said, noting that companies will likely pass on higher labor and transportation costs by raising prices.
The BOJ is carefully monitoring the potential economic fallout from U.S. trade policies, with Uchida stating that the bank will assess the situation without bias, given the high level of uncertainty. His comments reflect the BOJ’s struggle to balance the negative impact of U.S. tariffs on growth with the inflationary pressures arising from tight labor conditions and rising raw material costs.
At its meeting in late April, the BOJ decided to keep interest rates steady at 0.5% while cutting its growth forecast due to the ongoing uncertainty over U.S. tariffs and their effect on exports. However, some BOJ board members suggested that interest rate hikes could resume after a brief pause, provided the impact of U.S. tariffs stabilizes.
The BOJ’s meeting summary indicated that while the board views U.S. tariffs as detrimental to Japan’s economy, the damage is not expected to derail the path toward achieving the BOJ’s 2% inflation target. “The BOJ will pause rate hikes temporarily due to slower U.S. growth, but it should remain flexible and resume hikes if U.S. policy changes,” one board member noted.
Another member warned that the BOJ’s policy path could change quickly, depending on the evolving economic situation and the effects of U.S. tariffs on Japan. Despite the challenges, a third member stressed that the BOJ’s rate hike stance remains unchanged, as inflation is projected to reach the 2% target, and real interest rates remain deeply negative.
The BOJ’s policy meeting coincided with growing fears of a global recession sparked by U.S. tariffs. However, global stock markets saw a rebound after the U.S. and China agreed to reduce tariffs for at least 90 days, easing tensions between the two largest economies.
As the BOJ continues to review its policy, members emphasized that its growth and price projections are provisional and could change significantly depending on how U.S. tariffs evolve. The BOJ is also planning to review its bond taper plan in June, with discussions focused on liquidity conditions in light of recent increases in long-term yields.
The bank will also prepare a new tapering plan for the period after fiscal 2026, following its current bond taper plan that runs through March 2026.
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