Global Business: Japan’s Economy Braces for Tariff Turmoil

Global Business: Japan’s Economy Braces for Tariff Turmoil

Japan’s central bank held interest rates steady on Thursday but cut its growth forecast amid growing trade uncertainty. It marks the second straight meeting in which the Bank of Japan opted to hold rates at 510 of a percentage point. It predicts growth in the country will subside amid a global trade slowdown. But the bank still expects inflation to hit its 2% target in the coming years and implement further rate hikes in the year ahead. This comes as US tariffs hit Japanese exports and Japan’s top tariff negotiator visits Washington for a second round of trade talks. For more now on the state of Japan’s economy, I’m joined by Cliff Tan. Cliff is the former East Asia head of global markets research at MUFG, Japan’s largest bank and financial group. Thanks for joining us, Cliff. Great having you. You know, the BOJ has maintained ultra- low interest rates for years to combat deflation. Thoughts on the effectiveness of this policy? C can you share with us? Sure, Diego. First, let me say I’m very pleased to be back. Um I think uh it’s finally worked to an extent in the last few years but historically when you look back at this chapter of BOJ history I might suggest that uh historically it might not uh be the the best policy whether uh Bank of Japan thinks that monetary policy is the best way to create inflation. There are two reasons for that. The first is that uh in all the years that they were uh keeping the zero interest rate policy, I think uh to some extent it hurt their credibility uh with the financial markets and it also forced them to contort themselves uh in in different ways to try to make it uh make their case that this policy is working. uh with my uh former bank, it’s no secret that we thought that the zero that rather the negative interest rate policy uh was actually going to be harmful to banks as well as to the overall economy. So that’s just something to think about as as we move forward. And Cliff, how would you characterize the current state of Japan’s economy? And how is Japan’s aging demographic shifting that that shift is affecting its economic outlook? Yeah, those are both good questions. Um, I think uh we’re at the month end, so we’re getting uh the month monthly economic indicators in. And I think one of the things that’s kind of interesting is that the Trump tariffs have not only affected US production, but I think they’re also kind of messing around with Japanese production as companies try to deal with this uncertain policy environment. You know, I’m seeing some hiccups uh in production in industrial production that is uh not normal uh for this uh for this stage of the business cycle. So, this is something to to really keep an eye on. As far as the demographics go, I mean, we’ve known about this for a while, and it’s interesting because Japan kind of has a similar challenge as China does. And there is always a solution, but it’s a very deep ask for Japanese society. Japan can overcome the demographic um uh the siphoning off of labor supply if if it was willing to allow some immigration to come in to buttress the labor uh shortage. Now, that that uh is something that as as all all your viewers will know is is a big ask when it comes to Japanese society, but it’s a it’s kind of an obvious solution. And I’d like to come closer to our to our current discussions, right? How has the US move to impose tariffs impacted regional trade and of course in that context the Japanese economy? It’s had a big impact because you know what Trump is trying to do is trying to eliminate China as a reasonable production base for the world and if uh if he’s successful then everybody is going to have to adjust given how big China is. So I think you know the the question for Japan is not so much about scurrying about to look for another production base but to really think about now Trump and and MAGA his support base is moving the US into an isolationist period. If you read US history this is actually not that uncommon. There have been times before some some would even argue more so than than others when the US has been a very isolationist country. So if the US is going to move that way, it actually may present some opportunities for Japan in the future. Let me give you one example. you know, if the US is going to make it more difficult for the Europeans to produce pharmaceuticals and then export them to to the US as one part of this isolationist policy, then it’s it’s a uh it’s a straightforward thought that maybe Japan can go in and fill the gap because pharmaceutical precursors is one uh of the products that an advanced industrial country like Japan can make and can make probably at a very high standard. I see. So if the US is going to become more isolationist, Japan needs to think about okay, if that’s the case, you know, how can how can we maybe take advantage of that and actually increase the advantages for the Japanese economy in the longer run? you’re discussing something something interesting uh because you’re discussing a historical trend in the context of ongoing conversations and talks and and and what can we expect now from the ongoing US Japan trade talks? Well, as as you probably know, I mean, a comprehensive trade agreement is literally thousands of pages of legal lease, you know, bound together. So, one thing I would say is that if Japan rushed to a trade agreement, it may not be necessarily the best thing for Japan. There was a video that went viral a few days ago where one of the uh legislators in the Japanese diet very humorously talked about his advice for the Japanese trade negotiator. But I think there was a point in that discussion which is that you know just rushing to agree to whatever uh the Trump administration is demanding may not be the best thing for Japan and they’ll need to think about that very care carefully in terms of all its ramifications. I mean, I think Trump is just expecting Japan to agree to something like what we saw during the Reagan era in which, you know, we had voluntary export restraints on cars and on steel and so on and and the uh deployment of FDI uh to the US to make cars and you know and make more steel here. Yes. Whether you can use the same solution uh for a problem that’s 25 years ago is not clear to me. Yeah, that was so the Japanese negotiators. Yes. You know, and and all the planning organizations will really need to think about the ramifications of everything that the US is is demanding. I see Cliff Tan, we have to leave it there, but thank you very much for your insights. Great having you.

Bank of Japan slashes economic forecast amidst a looming trade war. CGTN’s Diego Laje spoke with Cliff Tan, a former East Asia Head of Global Markets Research at MUFG, on how Japan is one of a handful of countries currently in talks with Trump over averting steeper tariffs. #biz #japan #tariffs #economy #US #globaltrade #trade #globalbiz #interestrate #bizshow

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