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Tariffs prompt Bank of Japan to lower growth forecasts

Emma Reilly by Emma Reilly
May 1, 2025
in Economy
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Japan's central bank cut its growth forecasts for 2025 and 2026 over the uncertainties brought by Donald Trump's tariffs. ©AFP

Tokyo (AFP) – The Bank of Japan revised down its growth forecasts and held interest rates steady on Thursday, warning that trade tariffs are fuelling global economic uncertainty. Kazuo Ueda, the central bank’s governor, said it was difficult to assess the impact of the sweeping levies imposed by US President Donald Trump and retaliatory measures by affected nations. “The level of uncertainty will be significant,” Ueda warned. “Even when the overall framework of the tariffs is decided, it will still be the implementation of tariffs of an unprecedented scale.”

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Trump’s hardball campaign to rectify what he says are unfair trade imbalances includes tariffs on trading partners and imports including steel and automobiles. The BoJ said it now expects Japan’s gross domestic product (GDP) to rise 0.5 percent in fiscal 2025, which started in April — down from its previous estimate of 1.1 percent. In fiscal 2026, it expects GDP in the world’s fourth-largest economy to expand 0.7 percent, down from 1.0 percent previously forecast.

“Japan’s economic growth is likely to moderate as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors,” the bank said. However, “factors such as accommodative financial conditions are expected to provide support” and “thereafter, Japan’s economic growth rate is likely to rise.”

– Market fragility –

The BoJ’s decision to stand pat on interest rates — holding them at around 0.5 percent — following a two-day policy meeting had been widely expected. Bank officials began lifting borrowing costs last year after nearly two decades of ultra-loose monetary policies aimed at kick-starting torpid economic growth in Japan. Its key rate is still much lower than the US Federal Reserve’s 4.25-4.5 percent and the Bank of England’s 4.5 percent.

Masamichi Adachi and Go Kurihara of UBS said ahead of the BoJ policy meeting that “market fragility and uncertainty in the global economy due to the US tariff/trade policies” would lead the BOJ to hold rates. Analysts including Marcel Thieliant from Capital Economics said interest rate increases could still be on the table later this year. “We believe that the trade war won’t be as damaging as feared and we’re sticking to our forecast of another rate hike in July,” Thieliant said.

Japanese tariff talks envoy Ryosei Akazawa will hold a second round of negotiations later Thursday in Washington, seeking to secure relief from the trade levies. “Fruitful negotiations between Washington and Tokyo to mitigate the impact of tariffs on exporters may help Japanese policymakers in hiking interest rates,” Katsutoshi Inadome at SuMi TRUST said.

© 2024 AFP

Tags: Bank of Japaneconomic growthtrade
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