BoJ expected to keep rate-hike signal intact despite tariff risks

The central bank may also push back the expected timing for sustainably meeting its 28 inflation target

- 

The Bank of Japan (BOJ) is expected to signal next week that risks from higher US tariffs won't derail a cycle of rising wages and inflation seen as crucial to keep raising interest rates, said four sources familiar with its thinking.

The assessment, to be included in its quarterly outlook report due on May 1, will underscore the BOJ's desire to keep alive market expectations of further interest rate hikes - even though the timing of its next move could be months away.

"It's hard to predict the exact damage to the economy from (President Donald) Trump's tariffs at this stage," said one of the sources.

"On the other hand, it’s clear intensifying job shortages will pressure Japanese companies to keep hiking pay,” the source said.

“Risks have heightened, but probably not enough yet to overhaul the BOJ's baseline scenario of a moderate economic recovery,” another source said. “Unlike during the COVID-19 pandemic, it’s not as if demand has suddenly evaporated.”

The language is subject to change as there is no consensus within the BOJ on details of the report, which will not be finalised until closer to the April 30-May I meeting.

Such a hawkish message may help Japan fend off criticism from Trump that Tokyo is keeping the yen artificially weak to give its exports a competitive trade advantage, some analysts say.