On Thursday, Bank of Japan board member Junko Nakagawa expressed concerns that ongoing ambiguity related to U.S. tariff regulations could negatively impact corporate and consumer confidence, potentially hampering both the Japanese and global economies. Nakagawa remarked in a speech available on the BOJ’s website that although a trade deal has been established between Japan and the United States and there is progress in trade discussions with other significant economies, “numerous uncertainties persist.”
Consequently, she mentioned that “global business and consumer confidence” might be influenced, which “could subsequently dampen both domestic and international economies.” Nakagawa reiterated that the BOJ intends to continue increasing interest rates if the economy progresses according to its predictions, yet emphasized the necessity of thoroughly evaluating data when making policy choices due to the increased uncertainties. Notably, Nakagawa highlighted the significance of the forthcoming BOJ “tankan” business sentiment survey to assess the effects of trade discussions among significant economies on Japanese enterprises. The upcoming tankan quarterly survey will be issued on October 1. Previously the chair of Japan’s Nomura Asset Management, Nakagawa is viewed by market participants as neutral regarding monetary policy. Following the conclusion of an extensive, decade-long stimulus last year, the BOJ upped interest rates to 0.5% in January, believing Japan was on the brink of sustainably achieving its 2% inflation goal. The BOJ maintained rates in July but raised its inflation predictions and presented a less pessimistic view of the economy, sustaining market hopes for a rate increase this year. However, persistently high food inflation and the likelihood of ongoing wage increases have prompted some BOJ board members to caution about potential second-round price impacts that might justify another rate hike, as indicated by a summary of the bank’s July meeting. In her address on Thursday, Nakagawa remarked that upward wage pressure could persist, further elevating prices, which would subsequently influence consumer confidence and inflation expectations. Almost two-thirds of economists surveyed by Reuters in August anticipate the BOJ will elevate its primary interest rate by at least 25 basis points again later this year, a rise from just over half a month prior.
