BoJ’s Uchida: There are both upside, downside risks from US tariffs on Japan’s prices

Bank of Japan (BoJ) Deputy Governor Shinichi Uchida said on Tuesday that “there are both upside, downside risks from US tariffs on Japan’s prices.”

Additional comments

• US tariffs put downward pressure on Japan’s economy.
• Japan’s economic growth is expected to slow to around its potential before resuming moderate growth as overseas economies recover.
• Japan’s output gap to remain around current levels, after which it will resume improvement toward end of the BoJ’s three-year projection period through fiscal 2027.
• The BoJ expected to keep raising interest rates if economy, prices improve as we project.
• Japan’s underlying inflation, medium- and long-term inflation expectations will likely stagnate temporarily.
• But even during that period, wages are expected to continue rising as Japan’s job market very tight, firms likely to continue passing on rising labour costs.
• Once the global economy resumes an uptrend, Japan’s economy is likely to recover and heighten underlying inflation and inflation expectations.
• Uncertainty surrounding our forecasts is extremely high, so we will determine without pre-conception whether our forecasts will materialise.
• Strong yen has negative impact on exports, big manufacturers’ profits but improves households’ real income and pushes up retailers’ profits via falling import costs.
• Rapid FX moves make it difficult for firms to set business plans, heighten uncertainty.

Market reaction

USD/JPY keeps the offered tone intact following these headlines, down 0.38% on the day at 147.88 as of writing.