The Bank of Japan (BOJ) has expressed growing uncertainty regarding Japan’s economy as businesses become increasingly concerned about the potential negative impact of higher U.S. tariffs on their profits. This development signifies that President Donald Trump’s tariffs could potentially disrupt a moderate recovery phase that the Japanese economy has been experiencing. During a quarterly meeting of its regional branch managers, the BOJ reported that while it still assesses all nine regions as either recovering or showing moderate growth, the rising uncertainty is concerning. They highlighted that the tariffs could interfere with the cycle of increasing wages and prices, which is necessary for further interest rate hikes.
Although the BOJ did not reference the tariffs directly, it noted that firms are increasingly worried about their output and profit due to the unpredictability surrounding U.S. trade policies. Kazuhiro Masaki, the BOJ Osaka branch manager, remarked that the current situation is distinct from past economic shocks since it is driven by policy changes, making it difficult to assess the potential impact based on prior experiences. He indicated that companies in western Japan are already strategizing on how to mitigate these risks. The central and southern regions, which host major automotive manufacturers like Toyota, echoed these concerns regarding profitability.
Kenji Sakuta, the Fukuoka branch manager, stated that uncertainty about earnings had begun to surface among companies and anticipates these sentiments will proliferate. Market reactions were swift, with Asian share markets experiencing significant declines as fears of recession spread, triggered by Trump’s tariffs. The BOJ is expected to keep interest rates steady at its upcoming policy meeting and will offer new economic forecasts, even as the regional assessments are yet to fully account for the latest tariffs. The Japanese government is considering additional budget measures to counteract the negative impacts of these trade policies and the ongoing inflation, which could severely affect the export-driven economy.