BOJ Deputy Governor Highlights Economic Uncertainties Despite US-Japan Tariff Deal

In a recent statement, Bank of Japan Deputy Governor Shinichi Uchida remarked that the tariff agreement forged between Japan and the United States constitutes a major advancement for Japanese businesses confronting the uncertainties introduced by former President Donald Trump's trade policies. Speaking at a press conference in Kochi, western Japan, Uchida pointed out that, while this deal marks progress, many uncertainties persist in both the global market and Japan's economy, particularly as trade discussions between Washington and other nations continue.

Uchida expressed that the Bank of Japan will carefully analyze the repercussions of the newly established deal on the Japanese economy and pricing, capturing these insights within their quarterly outlook focused on growth and inflation expected to be published following their policy meeting next week. This comes in light of Trump's announcement of a "massive" trade agreement with Japan, which features a reciprocal tariff of 15 percent, a decrease from previous proposals, particularly impacting the automotive sector crucial to Japan's export-driven economy.

Under the guidance of Kazuo Ueda, the Bank of Japan has transitioned from a lengthy period of unconventional monetary easing, having raised its key interest rate three times since March of the previous year. Nonetheless, during their most recent policy meeting in June, the central bank maintained its benchmark rate at 0.5 percent, marking the third consecutive meeting without adjustments to the rate, as uncertainties arising from U.S. tariffs weigh down the economic outlook for Japan.

Earlier in the week, Uchida reiterated the Bank's openness to gradual monetary normalization aligned with improvements in the economy and inflation rates. He noted the persistent low real interest rates and indicated that the central bank, in response to positive economic activity and pricing trends, would continue to elevate the policy interest rate. He also flagged the need to monitor the economic indicators carefully, as both domestic and international economies appear to be at a pivotal moment. Uchida expressed concerns regarding the potential deflationary pressures from U.S. trade policies and the inflationary impact from factors pushing prices upward, especially within the food sector, stressing the importance of understanding how these influences might affect future pricing behaviors and wage-setting practices among firms.