BOJ holds steady, no signals on future rate hikeーNHK WORLD-JAPAN NEWS
Trump has also set new tariff levels for two other major US trading partners just ahead of the August 1 deadline for deals. Yuko Fukushima from our business desk joins us now. So Yuko, this affects South Korea and India in but in a diff quite different ways, right? Yes, it does. So let’s start with South Korea and this country has been able to reach a trade agreement with the Trump administration. Donald Trump said on Wednesday the US tariff on South Korean imports will be 15%. That’s the same rate the US will charge Japan and the EU. Trump had earlier threatened to slap South Korea with a 25% levy from August 1st. In addition, South Korea will invest $350 billion in the US. Trump says those funds will be owned and controlled by the US and that he will select the projects. The agreement also calls for South Korea to purchase $100 billion dollars of liqufied natural gas or other energy products. South Korea’s presidential office on Thursday referred to tariffs on semiconductors and pharmaceuticals, said it does not expect the levies will put the country at a disadvantage with other exporting nations. The office said the two sides agreed to refrain from further opening South Korea’s beef and rice markets. But India is another story. President Trump says he’ll slap the country with a 25% tariff rate plus a penalty for buying Russian oil and weapons. They have one of the highest tariffs in the world. Now, they’re willing to cut it very substantially, but we’ll see what happens. We’re talking to India now. We’ll see what happens. Trump says the measures will start August 1st. He also criticized India’s purchase of military equipment and energy from Russia. Trump is ramping up pressure on Moscow to agree to a ceasefire with Ukraine. The Indian government says it’s studying the implications of Trump’s announcement it plans to continue negotiations with the US. Trump has warned that other countries unable to reach agreements could face 15 to 20% tariffs. Now, the Bank of Japan has decided to keep his benchmark interest rate unchanged. Now, this was the central bank’s first policy decision since Japan struck a deal with the US on Trump’s tariffs. Washington’s trade policies have been a source of much uncertainty for the bank and seen as a potential risk for the economy. Even so, the BOJ’s latest decision reflects a cautious stance. The bank maintained its short-term policy rate at around half a percent. That was the level set after a rate hike in January, and it has remained there ever since. Japan’s central bank decided to hold steady at the second day of its policy meeting on Thursday. Officials say they want to keep monitoring how tariffs will impact corporate profits and other aspects of the economy. The BOJ also announced its quarterly economic outlook through fiscal 2027. Its median forecast for economic growth this fiscal year sits at an annualized 6% in real terms. That is up from the April forecast of half a percent. The central bank projects that consumer prices will rise 2.7% this year, up from the 2.2% forecast in April. The bank pointed to rice and some other food items, saying prices remain high. But the bank believes inflation will come down in the following years as the price hikes for food start to ease. The bank has indicated it will consider raising interest rates if the economy and inflation move in line with forecasts. The Bank of Japan governor spoke to reporters after the decision. Investors were looking for hints as to when the next rate hike is coming. As before, the bank will carefully assess our confidence in our outlook that the economy and inflation will improve and that the underlying inflation rate will rise. Based on this assessment, we will appropriately determine at each monetary policy meeting whether and when to hike the policy rate. So what does that signal? I talked to Adachi Masamichi, chief economist at UBS Securities and former BOJ official. He told me Governor UEA was being very careful not to suggest a time frame for the next rate hike. He’s very uh uh obvious that the next policy change is a rate hike. All right. So this message is very clear but timing wise they want to have a uh you know flexibility. So uh compared to the uh ECB or compared to the Fed I think the BOJ’s message is looks quite uh ambiguous. However, I I think given the uh uh situation for the Japan which you know experienced a very long deflation and a very long uh stagnation, you know, he’s very cautious. Having said that, you know, looking at the situation around the world, when do you think the next rate hike by the Bank of Japan will be? And can you give us uh the factors that’s driving your predictions? My base case now is that the BOJ raise a rate probably March next year. We are expecting the US uh domestic demand contract two quarters uh in row in this third quarter and fourth quarter of this year and Fed will cut the uh its policy rate by 100 basis point 1%. under such environment I think BOJ cannot raise a rate uh uh within this year that’s a first point and second point that BOJ never ever can tell but in reality you cannot ignore the political situation as you know that the after the upper house election which left the uh LDP and the comato uh losing majority both lower house and upper house you know the political situation from here is very uncertain. I mean, Prime Minister Ishiba may need to step down in the in the near future and the LDP, the ruling party may need to choose the new leader and the new leader may be against the BOJ policy rate hike. A lot of BOJ watchers who are saying that sometime this year the Bank of Japan will raise rates because the headline inflation is so high. Uh what do you say to that? people pay attention on the high headline inflation of more than 3%. But the BOJ argued that this will fall uh I mean below 2% by next year uh because the uh uh current 3 more than 3% inflation coming from more than half in food prices and the food prices are likely to slow down from here especially rice prices which doubled in one year. It’s now you know falling as you may know and we still don’t know what the wage growth likely in the next year 2026. Well, the Bank of Japan is giving little away at this stage.
Japan’s central bank kept its key interest rate unchanged at around 0.5%. We look at why policymakers remain wary of tightening, despite a recent tariff agreement with the US. #business #japan #usa
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