Bank of Japan Unchanged: Updated May 5, 2025.

BOJ to leave policy rate unchanged amid US tariff uncertainty

Article source:  

https://mainichi.jp/english/articles/20250430/p2g/00m/0bu/012000cArticle:

Ideas:

The Bank of Japan, like most central banks, are very conservative and don't make moves unless they feel it's extremely important for their own economy.

There seems to be just too much uncertainty now with the China/US situation and of course the tariff situation which one knows exactly what is going to happen in the near future.

And then there is the tariff situation on car parts, which Japan is a major producer of car parts and demand for Japanese made car parts might see decreased demand in the future, which could cause real harm to some Japanese car parts makers.

Because the administration in the US has caused global havoc no one knows exactly what is going to happen and what even worse they have caused havoc among long-time US allies to make it even worse.

The chances of a Japan recession has maybe increased to maybe 50 percent of more now as Japan exports a lot to the US, and the demand for those exports could decrease significantly in the near future.

The Bank of Japan is not going to increase the key rate with the potential of a recession lurking more and more in the future as a recession and a higher rate increase could have huge consequences for the Japanese economy.

Even as wages have increased on April 1, the beginning of the new year, inflation might still be too high for most Japanese households to feel good about the wages increases.

The problem and always has been that over 70 percent of the Japanese workforce don't work for large Japanese companies but small and midsize companies that can't match the wage increases that the large companies give, which means most if not all of the workforce is not feeling good about the wage increases they have received.

And related to how companies and the stock market feel, they want certainty and not volatility and with the current situation now there is no certainty only uncertainty about the future.

The current administration has no idea about absolute and comparative advantage as products made in other countries besides the US are made there for the good of the global economy, as if made in the US they would be too expensive for most US consumers, who now have gotten used to products made in China, Vietnam and other countries that can make products more easily and cheaper which benefits everyone.

The global economy, like the US economy could be headed for a recession or maybe even worse unless smarter heads can figure out how to solve the current situation.

Even a 10 percent tariff might be too much as along most supply lines or supply chains the price of the product can be increased to make up for increased costs which then is passed onto the final customer.

It might take a year or two more before the BOJ's 2 percent target is reached if at all. The problem is Japan is a resource poor country and has to import most of what it needs and imports drain the current account which could potentially cause havoc with the weakening of the Japanese yen in the future, which make it even worse.

Wages might have increased by 5.1 percent but that might not have been again for all Japanese workers as most of the Japanese workers don't work for large Japanese companies but small and midsize companies which usually don't have the same resources as the large companies needed to increase wages that much.

Japanese consumers, this week are probably not traveling as much as last year or spending as much this time during the Golden Week period which is a major holiday period for Japanese households, due to the continued inflation situation in Japan.

Have a nice day!