International Economy at a Pivotal Moment: BOJ's Uchida on Global and Japanese Economies
Bank of Japan Deputy Governor Shinichi Uchida has delivered a cautious yet optimistic outlook for Japan's economy, acknowledging a moderate recovery while highlighting significant challenges ahead. Speaking at a recent press conference, Uchida emphasised the need for flexibility in monetary policy and preparation for unexpected developments.
Uchida credited the Bank of Japan's accommodative monetary policy and domestic economic resilience for the current recovery, but warned of lingering weaknesses. He expressed concern over extreme uncertainty surrounding U.S. tariff measures, which he believes pose significant downside risks to both domestic and external demand.
Regarding the U.S.-Japan trade deal, Uchida expressed worry that the 15% tariff on Japanese exports to the U.S. could potentially offset strong Japanese wage growth and restrain the BoJ from further interest rate hikes. However, he also noted that corporate profits are expected to remain high, assuming progress in U.S. tariff negotiations.
On the monetary policy front, Uchida confirmed that the BoJ will continue to raise the policy interest rate and adjust the degree of monetary accommodation as economic activity and inflation improve according to projections. To maintain flexibility, the BoJ will carefully balance upside and downside risks, including by continuing to cautiously reduce its purchases of Japanese government bonds (JGBs) as part of monetary policy normalization.
In summary, Japan's economy is moderately recovering but still faces some weaknesses. U.S. tariff uncertainty poses significant downside risks to growth and influences BoJ policy decisions. The BoJ plans to gradually raise policy rates and adjust monetary accommodation cautiously, maintaining flexibility to respond to market conditions and economic developments.
Uchida's views reflect a balanced approach, considering the current economic recovery against external risks, particularly from U.S. trade policies. He emphasised the need to prepare for unexpected developments and maintain a certain degree of flexibility in monetary policy.
It is worth noting that the Bank of Japan has been implementing a reduction in the purchases of Japanese government bonds since last August as part of its monetary policy normalization. Uchida also predicted that profits in the corporate sector will continue to be at a high level, and the BoJ will continue to raise the policy interest rate.
However, Uchida did not provide new information about the critical juncture in the Japanese and overseas economies or the assumption that U.S. tariff talks with trade partners will progress to some extent. He urged vigilance in the face of economic uncertainties and the need for the BoJ to adjust monetary policy to best balance upside and downside risks.
Despite the Bank of Japan's continuous decrease in Japanese government bond purchases and the anticipated rise in policy interest rates, Uchida suggests that corporate profits may remain high. However, he emphasizes the importance of having a flexible monetary policy in response to unexpected developments, particularly due to uncertainties surrounding U.S. tariff measures. In the photography industry, for instance, unforeseen changes in trade policies could significantly impact finance, given the reliance on imports for raw materials and components.
