Bank of Japan Governor Kazuo Ueda said early Wednesday that the central bank may need to take policy action if US tariffs hurt the economy, per Reuters.
Key quotes
May need policy response but will decide appropriately in line with changing developments, when asked about BOJ response if U.S. tariff policy puts downward pressure on Japan’s economy.
Will scrutinise without any pre-conception impact of U.S. tariff policy on Japan’s economy, as is already affecting corporate, household confidence.
From February onwards, risks surrounding U.S. tariff policy have moved closer towards ‘bad’ scenario BOJ envisioned.
Expect domestic food inflation to moderate, real wages to stablise in positive territory from middle of this year.
See both upside, downside risks to price outlook.
Market reaction
At the time of writing, the USD/JPY pair is trading 0.17% lower on the day to trade at 143.00.
Bank of Japan FAQs
The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.
The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.
The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.
A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.
