Breaking! Trump's tariff policy may become the 'terminator' of the Bank of Japan's rate hikes.
Recently, a major piece of news in the financial sector has garnered global attention: former Bank of Japan committee member Takako Seimei warned on Thursday that the tariff policy implemented by former U.S. President Trump may have quietly brought an end to the Bank of Japan's interest rate hike cycle. This viewpoint is like a stone thrown into a calm lake, creating ripples throughout the financial community.
Takako Seimei is quite influential in the industry. During her tenure at the Bank of Japan from 2016 to 2021, she had deep insights and personal involvement in the formulation and direction of Japan's monetary policy. She maintains close contact with current policymakers, and the credibility and reference value of her views are self-evident. According to her analysis, the uncertainty of U.S. trade policy is like a massively destructive storm, severely disrupting the global economy. As a country with a high degree of dependence on external markets, Japan will face varying degrees of impact on exports, output, wage growth, and consumption.
The automotive industry holds a crucial position in Japan's economic system, being one of the pillar industries. Its industrial chain covers a wide range, from parts production to vehicle manufacturing, and related services and trade, creating a large number of jobs and economic returns for Japan. However, the U.S. automotive tariff policy undoubtedly brings a catastrophic blow to the Japanese automotive industry, significantly impacting the Japanese economy. Japan has consistently struggled to reach an agreement with the U.S. in tariff negotiations, casting a heavy shadow over the Japanese economy, which heavily relies on automobile exports to the U.S., making the economic outlook of Japan uncertain.
Takako Seimei also pointed out, 'The real test for the Japanese economy may come in 2026.' Because the impact of U.S. tariffs has a certain lag, it will begin to gradually manifest over the next 6 to 12 months. This means that for a period of time to come, the Japanese economy will face unprecedented challenges. In an interview, she candidly stated, 'The Bank of Japan is likely unable to raise interest rates for quite a long time.' Based on her judgment, depending on the progress of trade negotiations between the U.S. and other countries, the Bank of Japan may not only delay its rate hike plans for this year but may even find it difficult to achieve a rate hike throughout 2026. The results of a Reuters survey also align with Seimei's views, with most analysts expecting the Bank of Japan to delay a rate hike this year, and slightly more than half believing the next rate hike will have to wait until early 2026.
Looking back at the Bank of Japan's policy history, during Seimei's tenure, the Bank of Japan maintained a combination of ultra-loose policies, including large-scale asset purchases, negative interest rates, and yield curve control. The current governor, Kazuo Ueda, made significant policy adjustments last year by exiting this policy framework and raising interest rates to 0.5% in January this year, with the judgment that Japan was about to achieve a sustained inflation target of 2%. Seimei believes that Ueda's decision to dismantle the complex policy framework was appropriate, but given the current backdrop of the U.S. tariff shock to the economy, an early rate hike is clearly not a wise move. She suggests that the Bank of Japan may need to commit to maintaining real low-interest rates to support the government's and private sector's efforts to restructure the economy through boosting domestic demand and diversifying exports.
Current chair of the SBI Financial Economic Research Institute, Takako Seimei, also stated, 'If the economy suffers a severe shock, the Bank of Japan will be forced to use all available tools again. This is the essence of policy-making — even if it means continuing to expand the already large balance sheet.' In fact, as early as May 1, the uncertainty of U.S. policies had already forced the Bank of Japan to lower its growth forecasts, suggesting that despite rising inflation in Japan, the next rate hike may be delayed under external pressures. Although Governor Kazuo Ueda hinted at pausing rate hikes, he also emphasized that the central bank is prepared to continue raising rates as long as borrowing costs remain low. However, Seimei pointed out that recent inflation in Japan is mainly driven by fuel and raw material costs, and as global demand weakens, this pressure may ease, adding more variables to the Bank of Japan's rate hike decision.
Trump's tariff policy is like an invisible hand, influencing the direction of the Bank of Japan's monetary policy and adding many uncertainties to the future development of the Japanese economy. Investors and various market participants are closely monitoring developments in U.S. trade policy and the Bank of Japan's subsequent decisions, which not only relate to the rise and fall of the Japanese economy but will also have far-reaching effects on the global economic landscape.
