BOJ’s Ueda Signals Rate Hike Despite Trade War Impact

Bank of Japan (BOJ) Governor Kazuo Ueda said Japan’s economy is resilient enough to endure the impact of U.S. tariffs and continue its inflation-wage growth cycle, suggesting the central bank may proceed with further interest rate hikes. Speaking Tuesday, Ueda warned that trade tensions under President Donald Trump’s administration—particularly tariffs—pose risks to exports, corporate investment, and wage growth in Japan.

While markets view the recent U.S.-China tariff rollback as a positive sign, Ueda cautioned that uncertainty remains high. He emphasized that Japan's economy faces downward pressure from multiple channels due to the evolving trade landscape. However, he remains optimistic, citing historically high corporate profits as a buffer against external shocks.

Ueda highlighted Japan’s tight labor market and persistent cost-push inflation as signs that wage and price increases will continue, supporting the BOJ’s 2% inflation target. Although consumer inflation may stall in the short term, the underlying trend still points upward, he said.

Japan's economy contracted in Q1, and April exports slowed—early indicators of the tariff toll. In response, the BOJ downgraded its growth and inflation forecasts on May 1, complicating the timeline for the next rate hike. Still, Ueda noted that April's consumer price data showed companies are passing rising costs onto consumers, reinforcing inflation momentum.

He added that progress in global trade talks could restore confidence and lift Japan’s economic growth. Ueda refrained from specifying when the BOJ might raise rates again, saying future decisions will depend on upcoming data.

This statement reinforces the BOJ’s cautious but hawkish stance amid global uncertainty and domestic inflation pressures, suggesting the door remains open for policy tightening later in 2025.