[TOKYO] The Bank of Japan said uncertainty over Japan’s economy was growing as some firms worried about the hit to profits from higher US duties, a sign President Donald Trump’s sweeping tariffs risked upending a moderate economic recovery.
In a quarterly meeting of its regional branch managers on Monday (Apr 7), the BOJ maintained its assessment for all nine areas to say they were either recovering or picking up moderately.
But it said in a statement that “uncertainty over Japan’s economy was heightening,” underscoring the BOJ’s concern Trump’s tariffs may threaten to derail a cycle of rising wages and prices – a key prerequisite for further interest rate hikes.
While the statement did not make direct mention of higher US tariffs, it warned that “some firms voiced concern over the impact on output and profits” from US trade uncertainty.
The BOJ’s assessment of regional economies, which is based on surveys conducted by its nationwide branches on firms, did not fully incorporate the impact of Trump’s reciprocal tariffs announced last week, a central bank official told a briefing.
The BOJ painted an optimistic view on the economy, saying that brisk spending by overseas tourists and strong demand for luxury items have underpinned consumption. It also said firms maintained their robust capital expenditure plans.
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Pay hikes were broadening for a wide range of sectors in regional areas, though some regions saw smaller firms voicing caution over further pay increases, the statement said.
“Companies continue to pass on rising import costs at a moderate pace,” with some also considering or implementing price hikes to raise funds to pay for rising labour costs, it said.
Asian share market tanked on Monday as investors feared that Trump’s tariffs could lead to higher prices, weaker demand and tip the global economy into recession.
Trump’s decision to slap a 25 per cent levy on auto imports, and a reciprocal 24 per cent tariff on other Japanese goods, will likely deal a huge blow to the export-heavy economy with analysts predicting the higher duties could knock up to 0.8 percentage point off economic growth.
The BOJ’s assessment of regional economies will be among factors that will be scrutinised at its next policy meeting on April 30-May 1, when the board is seen keeping interest rates steady at 0.5 per cent and issuing fresh quarterly economic forecasts. REUTERS
