Bank of Japan decides to raise interest rates, even amid Trump uncertainty

The Bank of Japan is going forward with rate hikes even though President Donald Trump’s trade war plans are still up in the air. On Tuesday in Tokyo, Deputy Governor Shinichi Uchida told lawmakers that the country’s central bank expects wages and prices to keep climbing, even if US tariffs make the economic picture messy. According to Reuters, the BOJ’s board still sees enough strength at home to keep lifting rates after years of stagnation. Shinichi told parliament that even if inflation in Japan slows down temporarily, the tight labor market will keep pushing up wages. He said, “Japan’s underlying inflation, and medium- to long-term inflation expectations, are likely to temporarily stagnate.” But even during that period, wages are expected to continue rising as “Japan’s job market is very tight.” He added that businesses are likely to pass on rising labor and shipping costs to customers by raising prices, giving the BOJ more reason to stay on its rate path. BOJ board members prepare for pause but don’t change stance The BOJ left its key interest rate untouched at 0.5% at its April 30–May 1 meeting, but it slashed its growth forecast. Even though Trump’s tariffs on imports are putting pressure on global trade and cutting into Japan’s export numbers, Shinichi said the board isn’t giving up on its goal. The plan is still to keep moving toward 2% inflation, which is how they justify continuing rate hikes later if things settle. A summary of the BOJ’s meeting released Tuesday shows some on the board believe there’s room to resume hikes after a short break. One unnamed member said, “The BOJ will enter a temporary pause in rate hikes due to slowing US growth.” But it shouldn’t be too pessimistic, and must conduct monetary policy in a nimble and flexible manner such as by “resuming rate hikes in response to changes in US policy.” Another board member said the bank’s direction “may change at any time” depending on how Japan’s inflation and economy respond to Trump’s policies. A third opinion in the summary added, “There’s no change to the BOJ’s rate-hike stance as our projection shows inflation achieving our 2% target and real interest rates are deeply negative.” That means the bank sees no reason to back off yet. Even if Trump’s trade rules slow things down, the bank believes it still has room to work with. Kato plans G7 meeting with US over currencies The BOJ ’s latest growth and inflation projections are not final. One board member said that forecasts could change depending on how companies respond to trade changes and how the US tariff policy plays out. That uncertainty also applies to the BOJ’s bond taper plan. One board member said the bank should review liquidity conditions at different maturities, especially after what he called “significant” increases in super-long yields. The board will hold another meeting in June to discuss a new taper plan. Right now, the BOJ’s current plan runs through March 2026, but after that, the board needs a new outline for the fiscal year beginning April 2026. Meanwhile, Finance Minister Katsunobu Kato said Tuesday he plans to meet US Treasury Secretary Scott Bessent at the G7 summit in Canada next week. Speaking at his regular press briefing, Katsunobu said, “I’m making preparations to attend the meetings of G7 finance leaders in Canada next week. If circumstances allow, I’d like to use this opportunity to have a meeting with Treasury Secretary Scott Bessent and continue to discuss foreign exchange.” Katsunobu clarified that currency matters won’t be part of regular trade negotiations. Japan and the United States have already agreed to keep currency issues off the table during direct trade talks, and those discussions will stay between their finance ministers. That’s a delicate line both countries are trying to manage while also dealing with inflation, trade wars, and global recession fears. Cryptopolitan Academy: Tired of market swings? Learn how DeFi can help you build steady passive income. Register Now

Source: Cryptopolitan