Analysis-BOJ's message: Food inflation can't be ignored even as Trump tariffs raise risks

Leika Kihara

Sun, Mar 23, 2025, 4:06 PM 5 min read

By Leika Kihara

TOKYO (Reuters) - The Bank of Japan's gathering past week passed with nary surprises, but for a cautious BOJ watcher its connection connected the request to stay vigilant connected food-driven inflationary pressures had an important takeaway: Rates could beryllium raised sooner than expected.

As with galore different cardinal banks, the Trump administration's wide tariffs against its trading partners person raised uncertainty for Japan's monetary way arsenic policymakers tread cautiously portion they effort to measure the economical implications of the rapid-fire bursts of U.S. duties.

All the same, increasing signs of sticky nutrient inflation, which adds to prospects of sustained wage increases, volition apt support the BOJ connected people to rise rates astatine a dependable gait successful opposition with much complaint cuts signalled by its U.S. and European counterparts.

Highlighting a occupation that galore large cardinal banks are grappling with, BOJ Governor Kazuo Ueda warned of heightened uncertainty implicit however higher U.S. tariffs could impact the planetary economy, successful explaining the bank's determination to support involvement rates dependable connected Wednesday.

But the BOJ tin incorporated to immoderate grade the imaginable interaction from Trump tariffs successful its quarterly outlook study owed astatine its adjacent gathering connected April 30-May 1, Ueda said, signalling a complaint hike astatine the gathering cannot beryllium wholly ruled retired adjacent though existent statement is for a tightening to hap astir the 3rd quarter.

He besides balanced concerns implicit planetary uncertainty with hawkish signals connected the home terms outlook, suggesting the BOJ was unwavering successful its resoluteness to support hiking short-term rates from the existent 0.5%.

Contrary to past remarks playing down nutrient ostentation arsenic temporary, Ueda said stubbornly precocious nutrient costs could person a lasting interaction connected underlying ostentation and nationalist perceptions connected aboriginal terms moves - some factors seen by the BOJ arsenic cardinal to the gait and timing of further complaint hikes.

"Rising nutrient costs are usually seen arsenic proviso shocks that tin beryllium overlooked. However, the prolonged summation successful atom prices means the hazard of these rises affecting ostentation expectations and nationalist sentiment is not negligible. As such, we volition request to ticker specified risks carefully," Ueda said.

Ueda besides said immoderate connected the committee "mentioned the request to stay vigilant to upside terms risks," a uncommon revelation of existent deliberations astatine the gathering that highlighted increasing worries wrong the BOJ connected home inflationary risks.

"If upside risks to underlying ostentation heighten, that volition beryllium a crushed to accelerate our process of adjusting the grade of monetary support," helium added, a wide awesome the BOJ won't shy distant from an earlier-than-expected complaint hike to anchor ostentation expectations.