(Reuters) -The Bank of Japan kept interest rates steady and cut its growth forecasts on Thursday, as uncertainty surrounding U.S. tariffs clouds the outlook for the world’s fourth-largest economy.
But the central bank projected inflation would stay roughly on course to hit its 2% target in the coming years, a sign that risks from U.S. tariffs might only delay, not derail, its rate hike plans.
Following are excerpts from BOJ Governor Kazuo Ueda’s comments at his post-meeting news conference, which was conducted in Japanese, as translated by Reuters:
UNCERTAINTY AROUND US TARIFFS
“Since the U.S. announcement of ‘reciprocal’ tariffs in early April, uncertainty surrounding each country’s trade policy is extremely high. There are various views on the outlook. But we based our forecasts on the assumption that there will be some progress in trade negotiations among entities, and that there will be no big disruption in global supply chains. Having said that, uncertainty regarding our baseline scenario is higher than in the past.”
TARIFF IMPACT ON JAPAN’S ECONOMY
“Recent developments surrounding tariffs will weigh on Japan’s economy by slowing global growth, hurting corporate profits, and prodding households and companies to hold off on spending due to heightening uncertainties. But we expect such downward pressure to recede thereafter, as overseas economies resume a moderate recovery.”
TARIFF IMPACT ON PRICES
“As for the impact on prices, underlying inflation will stagnate for some time, before heightening again.”
REAL INTEREST RATES
“Japan’s real interest rates remain very low, so by maintaining an accommodative monetary environment we can firmly support Japan’s economic activity. But uncertainty regarding the tariff impact is very high, so we will scrutinise without pre-conception whether our economic and price forecasts will materialise.”
INFLATION AND WAGE GROWTH
“We downgraded our growth forecasts for fiscal 2025 and fiscal 2026 due to the impact of higher tariffs. As such, we’ll enter a period in which both inflation and wage growth will likely slow somewhat. But we expect a positive cycle of rising wages and inflation to continue due to a severe labour shortage.”
INFLATION TARGET
“The timing (for inflation to converge to our target) will be pushed back somewhat. It’s hard to judge now when we can see the likelihood of our scenario being achieved because we will enter a period of stagnation in inflation. As such, we would like to take a flexible approach in our policy response.”
“Unfortunately, the likelihood of our baseline scenario being achieved is no longer very high. Depending on developments surrounding tariffs, our baseline scenario itself could change. That could affect our monetary policy decisions.”
“We could see inflation overshoot our forecast … It’s hard to say now how we could respond if inflation overshoots and growth undershoots. That will depend on the degree of overshoot in inflation, and that of undershoot in growth.”
(Reporting by Leika Kihara; Editing by Rashmi Aich)
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