Amid Trump's tariffs and a slowing US economy, the Bank of Japan may remain on hold.
2025-09-19 09:36:24
Amidst the volatile global economy, the Bank of Japan (BoJ) faces unprecedented challenges. Following its two-day monetary policy meeting on Friday (September 19), the BoJ is expected to maintain its short-term policy rate at 0.5%. This decision reflects not only the BoJ's cautious approach to domestic economic recovery but also its heightened awareness of Trump's tariff policies and the risks of a US economic slowdown.
Policy decision is coming
The Bank of Japan will conclude its two-day monetary policy meeting on Friday morning, with the market widely expecting the announcement of its interest rate decision between 11:00 and 12:00 Beijing Time. Analysts agree that the short-term policy rate will remain unchanged at 0.5%. Bank of Japan Governor Kazuo Ueda will hold a press conference at 2:30 Beijing Time, where he will explain the interest rate decision and share the central bank's latest views on the global economic situation. The market is particularly interested in Ueda's comments on Trump's tariff policy and its impact on the Japanese economy, as they will provide crucial clues for investors' assessment of the Bank of Japan's future policy direction.
Dealing with external uncertainties with caution
The context of this meeting is particularly complex. The Trump administration's tariff policies are having a profound impact on global trade patterns, while signs of a US economic slowdown are casting a shadow over Japan's economic recovery. As an export-oriented economy, Japan's economic performance is highly dependent on global demand, particularly the stability of the US market. Further weakening of the US economy could further pressure Japan's export sector, undoubtedly making monetary policymakers at the Bank of Japan (BOJ) cautious.
The chain reaction of the Fed's rate cut
Just before the Bank of Japan's meeting, the Federal Reserve announced an interest rate cut on Wednesday and indicated the possibility of further reductions in the future to address the weakening US labor market. While this move aims to stimulate economic growth, it has also injected new uncertainty into the global economy. For Japan, a slowing US economy could not only weaken export demand but also further squeeze corporate profits. This will force the Bank of Japan to be more cautious in determining the timing and magnitude of interest rate hikes when formulating monetary policy.
The fragility of Japan's economic recovery
Japan's economy has been on a path of moderate recovery in recent years, but its foundations remain fragile. Exports, a key engine of growth, are being directly impacted by Trump's tariff policy. The increased tariffs have increased the cost of Japanese exports to the US, thereby weakening the international competitiveness of Japanese companies. Meanwhile, the domestic consumer market is under pressure from continued increases in food prices, and rising household living costs are further constraining growth in consumer demand. These combined factors have created a dilemma for the Bank of Japan regarding interest rate hikes: a premature rate hike could stifle economic recovery, while maintaining low interest rates for a prolonged period could exacerbate inflationary pressures.
Looking for clues to interest rate hikes
The market is pinning high hopes on Bank of Japan Governor Kazuo Ueda's press conference, hoping it will reveal clues about the central bank's future monetary policy. Since January 2025, the Bank of Japan has paused its interest rate hikes, primarily to assess the potential economic impact of Trump's tariffs. Ueda has previously stated that the central bank will remain cautious about raising rates, especially amidst heightened global economic uncertainty. This press conference will likely feature further details on the central bank's views on tariffs, the slowing US economy, and domestic inflation, providing further market guidance.
Expert opinion: The timing of interest rate hike is unclear
Kei Fujimoto, senior economist at SuMi TRUST, said the Bank of Japan may resume raising interest rates in early 2026, but the exact timing remains unclear. He noted, "Policymakers need to carefully assess the impact of tariffs on corporate profitability and determine whether companies have the capacity to sustain wage increases." This view reflects the prevailing market expectation: while interest rate hikes are inevitable, the Bank of Japan is more inclined to maintain the status quo in the short term to observe changes in the external environment.
Continued high inflationary pressure
Japan's consumer inflation rate has exceeded the Bank of Japan's 2% target for more than three consecutive years. The continued rise in food prices, particularly for rice, has significantly increased household living costs. This inflationary pressure has prompted some hawkish members of the Bank of Japan's Monetary Policy Committee to sound the alarm. Hawkish member Naoki Tamura stated at a press conference in late June that "if upward inflation risks intensify further, the Bank of Japan may need to take decisive action to maintain price stability." This statement reflects concerns within the central bank about the risks of a prolonged low interest rate policy.
The potential risks of negative interest rates
Although the Bank of Japan (BOJ) will exit its decade-long massive monetary stimulus program in 2024 and raise short-term interest rates to 0.5%, real borrowing costs remain negative. Maintaining negative interest rates for a long time could lead to risks such as asset bubbles and runaway inflation, which is the primary reason hawks are pushing for rate hikes. However, uncertainty in the external economic environment, particularly the impact of Trump's tariffs and the slowing US economy, has forced the central bank to exercise greater caution in raising rates.
Prime Minister's resignation triggers chain reaction
Japan's domestic political landscape further uncertainties the central bank's policy outlook. Prime Minister Shigeru Ishiba announced his resignation earlier this month, and the ruling Liberal Democratic Party plans to elect a new leader on October 4th. This change in political leadership could have profound implications for the direction of economic policy, particularly regarding the coordination of fiscal and monetary policies. This forces the Bank of Japan to pay closer attention to evolving political circumstances when formulating monetary policy.
Economists disagree: Debate continues on the timing of interest rate hikes
A Reuters survey shows that most economists expect the Bank of Japan to raise interest rates by another 25 basis points before the end of 2025. However, there is significant disagreement among economists regarding the specific timing of this rate hike, with predictions concentrated around October 2025 and January 2026. This divergence reflects the complexity of the current economic landscape: on the one hand, inflationary pressures and a tight job market justify rate hikes; on the other, external economic risks and domestic political uncertainty compel the central bank to remain cautious.
Overall, the Bank of Japan is expected to maintain interest rates at its September 2025 meeting, reflecting its cautious approach to the current economic situation. The potential impact of Trump's tariffs and a slowing US economy present the Bank of Japan with a dilemma regarding raising interest rates. Governor Kazuo Ueda's press conference will be a focus of market attention, as his statements may provide important clues to future policy direction. Meanwhile, domestic inflationary pressures, a tight job market, and political uncertainty are all adding uncertainty to the Bank of Japan's monetary policy. How the central bank strikes a balance between stabilizing growth and controlling inflation in the coming months will undoubtedly be a focus of close attention for global investors.
The Bank of Japan meeting is attracting much attention, with the interest rate decision coming soon
Policy decision is coming
The Bank of Japan will conclude its two-day monetary policy meeting on Friday morning, with the market widely expecting the announcement of its interest rate decision between 11:00 and 12:00 Beijing Time. Analysts agree that the short-term policy rate will remain unchanged at 0.5%. Bank of Japan Governor Kazuo Ueda will hold a press conference at 2:30 Beijing Time, where he will explain the interest rate decision and share the central bank's latest views on the global economic situation. The market is particularly interested in Ueda's comments on Trump's tariff policy and its impact on the Japanese economy, as they will provide crucial clues for investors' assessment of the Bank of Japan's future policy direction.
Dealing with external uncertainties with caution
The context of this meeting is particularly complex. The Trump administration's tariff policies are having a profound impact on global trade patterns, while signs of a US economic slowdown are casting a shadow over Japan's economic recovery. As an export-oriented economy, Japan's economic performance is highly dependent on global demand, particularly the stability of the US market. Further weakening of the US economy could further pressure Japan's export sector, undoubtedly making monetary policymakers at the Bank of Japan (BOJ) cautious.
Fed rate cuts exacerbate global economic uncertainty
The chain reaction of the Fed's rate cut
Just before the Bank of Japan's meeting, the Federal Reserve announced an interest rate cut on Wednesday and indicated the possibility of further reductions in the future to address the weakening US labor market. While this move aims to stimulate economic growth, it has also injected new uncertainty into the global economy. For Japan, a slowing US economy could not only weaken export demand but also further squeeze corporate profits. This will force the Bank of Japan to be more cautious in determining the timing and magnitude of interest rate hikes when formulating monetary policy.
The fragility of Japan's economic recovery
Japan's economy has been on a path of moderate recovery in recent years, but its foundations remain fragile. Exports, a key engine of growth, are being directly impacted by Trump's tariff policy. The increased tariffs have increased the cost of Japanese exports to the US, thereby weakening the international competitiveness of Japanese companies. Meanwhile, the domestic consumer market is under pressure from continued increases in food prices, and rising household living costs are further constraining growth in consumer demand. These combined factors have created a dilemma for the Bank of Japan regarding interest rate hikes: a premature rate hike could stifle economic recovery, while maintaining low interest rates for a prolonged period could exacerbate inflationary pressures.
Kazuo Ueda's statement is highly anticipated
Looking for clues to interest rate hikes
The market is pinning high hopes on Bank of Japan Governor Kazuo Ueda's press conference, hoping it will reveal clues about the central bank's future monetary policy. Since January 2025, the Bank of Japan has paused its interest rate hikes, primarily to assess the potential economic impact of Trump's tariffs. Ueda has previously stated that the central bank will remain cautious about raising rates, especially amidst heightened global economic uncertainty. This press conference will likely feature further details on the central bank's views on tariffs, the slowing US economy, and domestic inflation, providing further market guidance.
Expert opinion: The timing of interest rate hike is unclear
Kei Fujimoto, senior economist at SuMi TRUST, said the Bank of Japan may resume raising interest rates in early 2026, but the exact timing remains unclear. He noted, "Policymakers need to carefully assess the impact of tariffs on corporate profitability and determine whether companies have the capacity to sustain wage increases." This view reflects the prevailing market expectation: while interest rate hikes are inevitable, the Bank of Japan is more inclined to maintain the status quo in the short term to observe changes in the external environment.
The game between inflationary pressure and hawkish voices
Continued high inflationary pressure
Japan's consumer inflation rate has exceeded the Bank of Japan's 2% target for more than three consecutive years. The continued rise in food prices, particularly for rice, has significantly increased household living costs. This inflationary pressure has prompted some hawkish members of the Bank of Japan's Monetary Policy Committee to sound the alarm. Hawkish member Naoki Tamura stated at a press conference in late June that "if upward inflation risks intensify further, the Bank of Japan may need to take decisive action to maintain price stability." This statement reflects concerns within the central bank about the risks of a prolonged low interest rate policy.
The potential risks of negative interest rates
Although the Bank of Japan (BOJ) will exit its decade-long massive monetary stimulus program in 2024 and raise short-term interest rates to 0.5%, real borrowing costs remain negative. Maintaining negative interest rates for a long time could lead to risks such as asset bubbles and runaway inflation, which is the primary reason hawks are pushing for rate hikes. However, uncertainty in the external economic environment, particularly the impact of Trump's tariffs and the slowing US economy, has forced the central bank to exercise greater caution in raising rates.
Political uncertainty casts a shadow over the policy outlook
Prime Minister's resignation triggers chain reaction
Japan's domestic political landscape further uncertainties the central bank's policy outlook. Prime Minister Shigeru Ishiba announced his resignation earlier this month, and the ruling Liberal Democratic Party plans to elect a new leader on October 4th. This change in political leadership could have profound implications for the direction of economic policy, particularly regarding the coordination of fiscal and monetary policies. This forces the Bank of Japan to pay closer attention to evolving political circumstances when formulating monetary policy.
Economists disagree: Debate continues on the timing of interest rate hikes
A Reuters survey shows that most economists expect the Bank of Japan to raise interest rates by another 25 basis points before the end of 2025. However, there is significant disagreement among economists regarding the specific timing of this rate hike, with predictions concentrated around October 2025 and January 2026. This divergence reflects the complexity of the current economic landscape: on the one hand, inflationary pressures and a tight job market justify rate hikes; on the other, external economic risks and domestic political uncertainty compel the central bank to remain cautious.
Summary: Monetary policy choices that balance caution and foresight
Overall, the Bank of Japan is expected to maintain interest rates at its September 2025 meeting, reflecting its cautious approach to the current economic situation. The potential impact of Trump's tariffs and a slowing US economy present the Bank of Japan with a dilemma regarding raising interest rates. Governor Kazuo Ueda's press conference will be a focus of market attention, as his statements may provide important clues to future policy direction. Meanwhile, domestic inflationary pressures, a tight job market, and political uncertainty are all adding uncertainty to the Bank of Japan's monetary policy. How the central bank strikes a balance between stabilizing growth and controlling inflation in the coming months will undoubtedly be a focus of close attention for global investors.
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