IMF Says BOJ May Delay Rate Hikes Amid Tariff Uncertainty

The Bank of Japan is likely to delay further interest rate hikes due to rising global uncertainty caused by U.S. tariffs, according to the International Monetary Fund. Nada Choueiri, deputy director of the IMF’s Asia Pacific Department, noted that the heightened trade tensions are dampening business sentiment and delaying corporate investment and wage decisions. This could lead to prolonged monetary accommodation by the BOJ.

The IMF now expects Japan to hit its 2% inflation target in 2027, a year later than previously forecast. Choueiri warned that firms are holding off on investments amid uncertainty over global tariffs, especially those imposed by U.S. President Donald Trump, including a 25% duty on Japanese car exports. These measures, paused until July, are already impacting growth projections.

The IMF downgraded Japan’s economic outlook in its latest World Economic Outlook, cutting its 2025 growth forecast to 0.6%, down from 1.1% in January. Inflation risks are also skewed to the downside, which could limit the BOJ’s ability to continue rate hikes. The central bank had raised its benchmark interest rate to 0.5% in January, ending its decade-long ultra-loose policy.

While Japanese Prime Minister Shigeru Ishiba plans to counter inflation with fuel subsidies and lower electricity bills, the IMF cautioned against broad fiscal stimulus. Choueiri emphasized that any support measures must be targeted and temporary to avoid worsening Japan’s debt burden. Cutting the sales tax, she warned, would only delay the fiscal reforms needed to address the country’s high public debt.

Despite economic headwinds, the IMF highlighted the yen’s strength as a safe-haven currency, supported by Japan’s economic stability and its commitment to a flexible exchange rate regime that helps absorb external shocks.