BOJ Signals Further Rate Hikes if Economy Recovers Despite U.S. Tariff Pressures

The Bank of Japan (BOJ) may continue raising interest rates if the economy rebounds from expected setbacks caused by higher U.S. tariffs, Deputy Governor Shinichi Uchida said. Speaking to parliament, Uchida noted that Japan’s core inflation would likely remain near the BOJ’s 2% target if growth resumes, though he warned of significant global economic uncertainty driven by shifting trade policies.

Uchida acknowledged that recent price increases—particularly in imported goods and essential food items like rice—have hurt household budgets and dampened consumption. “We are aware that these price hikes are negatively impacting livelihoods,” he said, emphasizing that the BOJ would adjust its monetary policy based on real-time economic developments rather than fixed expectations.

The BOJ ended its ultra-loose monetary stance in 2024, hiking its policy rate to 0.5% in January—the first increase in over a decade. It has since indicated readiness to tighten further if stable inflation and moderate growth persist. However, Japan’s economy shrank more than expected in the March quarter, marking its first contraction in a year. The downturn, attributed in part to rising U.S. tariffs under President Donald Trump, has raised doubts about the strength of Japan’s recovery.

At its recent policy meeting on May 1, the central bank sharply downgraded its growth outlook, citing the potential global fallout from protectionist trade measures. The BOJ’s inflation goal hinges on sustained wage increases driving domestic demand, but uncertainties surrounding international trade and consumption trends could derail this path.

Uchida reiterated the BOJ’s cautious approach, stressing flexibility and data-driven decision-making amid an unpredictable global economic environment. The central bank remains committed to ensuring that inflation is supported by stable, organic growth rather than temporary cost-push factors.