BOJ to Keep Rates Steady, Warn of US Tariff Risks

• The Bank of Japan is expected to keep interest rates steady on Thursday and warn of heightening risks to the fragile economy that could keep policy in a holding pattern, as U.S. tariffs continue to hit confidence.
• The debate may be swayed by what BOJ Governor Kazuo Ueda heard in Washington last week, where the International Monetary Fund slashed its global growth forecasts and policymakers fret of further damage to their economies from U.S. trade policy.
• Speaking after a meeting with counterparts from G20 major economies, Ueda said the BOJ will continue to raise interest rates - on condition the economy sustains a moderate recovery and keeps underlying inflation on track to hit its 2% target.
• While the BOJ is set to downgrade its growth forecasts, it is expected to signal that risks from higher U.S. tariffs won't derail wages and price hikes seen as crucial for further rate increases, sources have told Reuters. But the path towards policy normalisation may take longer than previously expected as trade tensions prod big exporters, which had spear-headed pay increases up till this year, to consider slowing or interrupting hikes next year.
• "The balance of risks is on the downside for growth and for inflation," as the tariff-induced uncertainty could discourage firms from sustaining bumper pay hikes in next year's wage talks, a senior IMF official said, projecting the BOJ to push back the timing of further rate hikes.
• At the two-day meeting ending on Thursday, the BOJ is widely expected to keep short-term interest rates steady at 0.5%. It is also seen pushing back the timing for durably hitting its 2% inflation target in a quarterly report, from around the latter half of fiscal 2025 in current projections made in January.

(Source: Reuters)