TOKYO: The Bank of Japan is likely to hold off raising interest rates this year unless a dramatic, positive turn of events in US tariffs allows it to overhaul gloomy projections made in May, its former top economist Seisaku Kameda said.
In a quarterly outlook report released on May 1, the BOJ cut its price forecasts and said underlying inflation will stagnate for some time as uncertainty on US trade policy weighs on the export-reliant economy.
The BOJ also cut its growth forecasts for both fiscal 2025 and 2026, a sign it sees the damage from US tariffs to intensify later this year and last through most of next year.
“I was surprised at how dovish the BOJ’s May outlook report was,” said Kameda, who is well-informed in how the central bank crafts the report and the interpretation of its language.
“Having said so clearly that underlying inflation will stagnate, it would take a very positive turn of events in US tariff talks for the BOJ to justify raising rates any time soon,” he told Reuters in an interview on Wednesday.
Japan’s exports fell in May for the first time in eight months as automakers like Toyota were hit by sweeping US tariffs. Tokyo’s failure so far to clinch a trade deal with Washington will likely put more pressure on a fragile economic recovery.
Given the lack of progress in trade talks and a dearth of data to gauge the impact of US tariffs, the BOJ is unlikely to make substantial revisions to its growth and price forecasts at the next outlook report due on Jul 31, Kameda said.
“If there’s a very big, positive change in US tariff developments, the BOJ would take that into account in its July report,” Kameda said.
“If not, the BOJ might find it hard to revise up its gloomy inflation forecast for fiscal 2026, which is key to the next rate-hike timing,” he said.
