[TOKYO] The Bank of Japan must hold off raising interest rates for the time being, its board member Toyoaki Nakamura said on Friday, warning of growing downward pressure on the economy from higher US tariffs.
Nakamura, known as the most dovish member of the board, said the central bank must guide monetary policy “cautiously” with due attention to how extremely high uncertainty over US trade policy could affect corporate and household activity.
“Japan’s economy is facing mounting downward pressure,” as steep US tariffs, including on its mainstay automobile sector, could seriously hurt corporate profits, Nakamura said in a speech.
“Rushing to raise interest rates when growth is slowing could curb consumption and investment with a lag,” said Nakamura, a former corporate executive whose five-year term at the board expires at the end of June.
Japan’s economy shrank for the first time in a year and at a faster pace than expected, data for the March quarter showed on Friday, underscoring the fragile nature of its recovery now under threat from US President Donald Trump’s trade policies.
While capital expenditure remains firm, uncertainty over the US tariff policy is already prodding Japanese firms to put off spending plans or take a wait-and-see approach, Nakamura said.
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The US tariffs could also trigger a “vicious cycle of lower demand and prices,” which requires the BOJ to tread carefully in future rate hikes, he added.
The US imposed 10 per cent tariffs on all countries except Canada, Mexico and China, along with higher tariff rates for many big trading partners, including Japan, which faces a 24 per cent tariff rate starting in July unless it can negotiate a deal with Washington.
The US has also imposed 25 per cent levies on cars, steel and aluminium, dealing a huge blow to Japan’s economy that relies heavily on automobile exports to the United States.
The global trade war touched off by US tariffs has also complicated the BOJ’s decision on when and how far it can push up interest rates.
Fears of a Trump-induced global slowdown forced the BOJ to sharply cut its growth forecasts at its April 30-May 1 policy meeting, and cast doubt on its view that sustained wage hikes will underpin consumption and the broader economy.
Most economists now expect the BOJ will hold interest rates steady through September to assess the effects of US tariffs, a Reuters survey showed, although a slight majority still see at least a 25-basis-point hike by year-end. REUTERS
