The Bank of Japan is expected to keep interest rates unchanged on Wednesday (March 19) as policymakers need more time to assess the impact of Trump's tariff policies on the export dependent Japanese economy. Although wage and price data show that Japan has made progress towards achieving its 2% inflation target, the market crash caused by Trump's tariffs and concerns about a global economic slowdown have overshadowed these positive signals. Market attention is focused on the post meeting press conference of the central bank governor, Kazuo Ueda, in search of clues for the next interest rate hike.

The impact of Trump's tariff policy

Trump's tariff policies have triggered recent market crashes and concerns about a global economic slowdown, posing significant risks to Japan's export dependent economy. Last week, the United States raised import tariffs on steel and aluminum to 25%, and plans to announce car tariffs and broader reciprocal tariff plans on April 2nd. The Organization for Economic Cooperation and Development (OECD) predicts that Trump's tariff policies will drag down economic growth in the United States, Canada, and Mexico, while pushing up inflation rates, and warning that a broader trade war could further weaken global economic growth.

Policy stance of the Bank of Japan

After raising interest rates in January, the Bank of Japan maintained its short-term policy rate at 0.5% and assessed that the Japanese economy would continue to recover moderately as rising wages supported consumption. According to sources, many decision-makers of the Bank of Japan believe that the price outlook is facing upward risks, and companies continue to pass on rising raw material and labor costs, leading to the overall inflation rate in January rising to a two-year high of 4%. However, the uncertainty of Trump's tariff policy has made the central bank more cautious about raising interest rates.

Market expectations and future interest rate hike prospects

The market is paying attention to Ueda Kazuo's press conference after the meeting to find clues on the timing of the next interest rate hike by the central bank. More than two-thirds of economists surveyed by Reuters expect the Bank of Japan to raise interest rates to 0.75% in the third quarter (most likely in July). The Bank of Japan has stated that it will be prepared to further raise interest rates if economic and price developments meet expectations. However, the market turbulence caused by Trump's tariff policies and concerns about a US economic recession may delay the schedule for interest rate hikes.

summarize

The decision of the Bank of Japan to maintain interest rates unchanged reflects the cautious attitude of policy makers under the shadow of Trump's tariff policies. Despite domestic wage and price data showing economic recovery and inflation progress, the uncertainty of Trump's tariff policy has made the central bank more conservative in raising interest rates. In the future, the Bank of Japan will comprehensively consider global economic data in its quarterly evaluation at the end of April to determine the timing and pace of further interest rate hikes. The market will continue to pay attention to the remarks of Ueda and the man in order to find clues on the direction of policies.