BOJ Likely to Keep Rate-Hike Signal Intact Despite Trump Tariff Risks

• The Bank of Japan is expected to signal next week that risks from higher U.S. tariffs won't derail a cycle of rising wages and inflation seen as crucial to keep raising interest rates, said four sources familiar with its thinking.
• The assessment, to be included in its quarterly outlook report due on May 1, will underscore the BOJ's desire to keep alive market expectations of further interest rate hikes, even though the timing of its next move could be months away.
• "It's hard to predict the exact damage to the economy from (President Donald) Trump's tariffs at this stage," said one of the sources. On the other hand, it's clear intensifying job shortages will pressure Japanese companies to keep hiking pay. The language is subject to change as there is no consensus within the BOJ on details of the report, which will not be finalised until closer to the April 30-May 1 meeting.
• Such a hawkish message may help Japan fend off criticism from Trump that Tokyo is keeping the yen artificially weak to give its exports a competitive trade advantage, some analysts say. At the two-day policy meeting ending on May 1, the BOJ will cut its economic growth forecasts and warn of escalating risks from Trump's sweeping tariffs that are set to dent global demand, the sources said.
• The central bank may also push back the expected timing for sustainably meeting its 2% inflation target, which was seen around the latter half of fiscal 2025 in current projections made in January.
• With markets still volatile, the central bank is widely expected to keep short-term rates steady at 0.5% at the April 30-May 1 meeting. Still, many BOJ policymakers are wary of concluding that further rate hikes are completely off the table, given a lack of hard data on the hit from tariffs to the economy and uncertainty over the outcome of bilateral trade negotiations.

(Source: Reuters)