The new US tariffs have weakened expectations of interest rate hikes, casting a shadow over the monetary policy outlook of the Bank of Japan. On March 27th, the United States announced a 25% tariff on non American made cars starting from April 2nd, which directly hits Japan's automotive industry - the country's largest pillar of exports to the United States.

Automobiles and parts accounted for over one-third of Japan's total exports to the United States last year, with the United States being its largest export market. Observers of the Bank of Japan generally believe that this will significantly reduce the possibility of a rate hike at the May 1st monetary policy meeting.

Atsushi Takeda, Chief Economist of Itochu Research Institute, said, "The possibility of a rate hike in May is further reduced. The Bank of Japan needs to conduct a thorough assessment of the impact of tariffs on the economy, and this process is clearly not expected to be completed before May

Currently, Japan's consumer inflation continues to exceed the central bank's target, providing a window for interest rate hikes. However, the arrival of new tariffs has forced the central bank to re evaluate economic risks.

Market research shows that most economists expected the Bank of Japan to raise interest rates in June or July last month, with about 50% of people believing May 1st to be the earliest point. However, the tariff policy has changed this expectation. Katsutoshi Inadome, senior strategist at Sumitomo Mitsui Trust Asset Management, pointed out that "the 25% tariff poses a resistance to the Bank of Japan's early interest rate hike, and long-term interest rates may fall below 1.5%

The multiple impacts of tariffs on the economy and market are rapidly emerging. The automotive industry is not only a pillar of Japan's exports, but also involves a wide range of upstream and downstream industrial chains. According to the Japan Association of Automobile Manufacturers, automobile related companies employ 5.58 million people, accounting for 8.3% of the national labor force. On Thursday morning, the stock prices of automotive giants such as Toyota, Honda, and Nissan all fell by over 3%.

Takeda Dun added, "Tariffs exacerbate the downside risks to the economy, but may not completely interrupt the slow recovery track. The relative competitiveness of Japanese car companies in the United States may alleviate some of the impact." Goldman Sachs analysts predict that tariffs will only drag down Japan's GDP growth by slightly over 0.1 percentage points, as the additional tax burden applies to all countries, and the competitive position of Japanese car companies has not been fundamentally shaken.

However, there are still doubts in the market about the uncertainty of the actual implementation of tariffs. The final execution strength of the Trump administration and the response measures of the Japanese government will be key variables affecting the subsequent trend of the economy.

The potential countermeasures of the Japanese government and the central bank's decision have become the focus of the market. Japanese Prime Minister Shigeru Ishiba stated on Thursday that the government does not rule out taking reciprocal measures against the United States and "strongly demands" exemptions for Japanese cars.

This statement demonstrates a tough stance on tariffs, but the actual effect remains to be seen. The fluctuation of the Japanese yen exchange rate will also be an important reference for the central bank's decision-making. If tariffs push up import costs, inflationary pressures may force the central bank to strike a difficult balance between recovery and stability.

According to market research citing institutional views, "If tariffs are fully implemented, the Japanese yen may face further pressure, and the central bank may need to postpone interest rate hikes to observe economic data rather than act rashly." Analysts believe that although the Japanese economy is facing downside risks, the risk of recession has not significantly increased due to the global competitiveness of the automotive industry and domestic policy buffers.