BOJ likely to raise inflation outlook for FY 2025, keep rate steady
Ideas:
The Bank of Japan is a very conservative central bank and its not going to do anything that they think might upset the financial markets at this time, especially when the Japan stock market it at an all time high.
Normally, a central bank will increase the interest rate if inflation continues but the BOJ seems a slightly different central bank that the US and EU's bank.
Of course the tariff situation is/could be a major reason why the BOJ didn't increase the key rate.
Even at 15 percent for the tariff rate, many Japanese companies might be significantly affected and again the BOJ must have taken that to account for not increasing the key rate.
The Bank of Japan, as it usually does, might think the Japanese economy is too weak for an interest rate hike at this time and they might be looking ahead as the economy could weaken even more because of the tariff situation.
Uncertainty is what companies don't want or like as they are unable to plan correctly for the next few quarters or the next year.
Japan car companies are global players as they need certainty and now as the global trading system has been completely disrupted they are unsure about the future and how to plan for it.
The 15 percent tariff might not be that much for large Japanese companies to absorb as they have larger profit margins but the same can't be said for Japanese small and mid-size companies that have much smaller profit margins and probably can't handle much more since they recently might have increased wages in April.
The major challenge is going to be for small and mid-size companies as they are very unlikely to be able to absorb the 15 percent tariff. And many of these small companies are car parts companies that export to the US and many other Japanese companies that are going to be it hard with the tariff situation.
Probably the only thing they might be able to do is pass-on the cost of the tariff to the new in the supply chain which then means the US importers that handle Japanese car parts and other products will then pass-on those costs to US customers and unfortunately demand for the products might decrease.
As mentioned in previous articles the increase in inflation in an economy could mean more money flowing through the economy which then means wages will increase as everyone is benefiting. But the Japanese economy seems to be in a different world as wage increases haven't kept up with the increases in inflation which is making the Japanese economy and very uneven economy at this time.
On top of that as inflation increases and begins settle in consumers usually begin to get used to it and get back to normalcy in the spending but that has not happened in Japan as consumer spending remains weak and again due to the low wages that are paid to Japanese workers compared to the global economy.
Ever since the pandemic Japan has been under a lot of inflation stress but for a period of time the BOJ felt the Japanese economy was just too weak to increase the key rate. But recently it has begun to address inflation situation but inflation really hasn't changed much in Japan as it seems the usually strategies to reduce inflation just aren't working in Japan or at least right now.
There just might be too many unknown variables that are affecting the Japanese economy including what is called hidden inflation which is very hard to root out.
The Bank of Japan might be looking ahead not just months but years ahead related to the tariff situation and they might think the Japanese economy is going to be too weak to handle a key rate increase, so they are preparing now for what might happen six months to a year from now.
In this case the Japanese government too, needs to step with some doable concrete strategies to help small businesses that make up the bulk of the Japanese economy and find ways to help them with the tariff situation.
Have a nice day!
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