BOJ’s Uchida Warns of Downside Risks Despite Potential Rate Hikes Amid U.S.-Japan Trade Deal

Bank of Japan (BOJ) Deputy Governor Shinichi Uchida cautioned that economic and price risks remain tilted to the downside due to “extremely high” uncertainty surrounding global trade policies. Speaking to business leaders in Kochi, Uchida emphasized the central bank’s readiness to raise interest rates further but stressed the need to balance risks to maintain stability.

His comments followed U.S. President Donald Trump’s announcement of a trade agreement with Japan, a development likely to ease some pressure on the country’s economic outlook. Uchida noted that while easing trade tensions could boost corporate profits and wages, prolonged tariff impacts might reverse recent wage growth trends.

Inflation trends are also shifting, with food price increases now extending beyond staples like rice, suggesting a structural change in firms’ pricing behavior. The BOJ projects core inflation will approach its 2% target between fiscal 2026 and 2027, supported by domestic demand.

The central bank, which ended its decade-long ultra-loose policy last year and raised short-term rates to 0.5% in January, will hold its next policy meeting on July 30–31. A quarterly report due then is expected to highlight tariff-related uncertainties but present a less pessimistic outlook compared to three months ago.

Analysts say the new U.S.-Japan trade deal could accelerate BOJ’s tightening cycle, even amid political uncertainty linked to Prime Minister Shigeru Ishiba’s potential resignation. A Reuters poll shows most economists expect another rate hike by year-end, although no move is anticipated at this month’s meeting.