BANK OF JAPAN WARNS OF UNCERTAINTY OVER TRUMP TARIFFS, KEEPS RATE STEADY

TOKYO, March 19 (Bernama-Kyodo) -- Bank of Japan Governor Kazuo Ueda on Wednesday expressed concern over uncertainties surrounding the impact on the domestic economy of United States (US) President Donald Trump's aggressive tariff plans, saying he wants to monitor the situation before deciding on the next rate hike, Kyodo News Agency reported.

At the end of a two-day policy meeting, the BOJ stood pat on the current rate of 0.5 per cent. The central bank, which has been shifting away from a decade of ultra-easy monetary policy, raised the key short-term rate from 0.25 per cent at the previous meeting in January.

"There is a high degree of uncertainty" regarding Trump's trade policies, Ueda said at a press conference. "We will decide on our policy after studying the impact (of US tariff plans) on the economic outlook and inflation in our country."

While acknowledging a downside risk to the global economy, the BOJ chief said the bank plans to increase its policy rate further if the domestic economy and prices continue to move in line with its expectations, adding that underlying inflation is still below the level the bank is aiming at.

The decision suggests the BOJ is taking a cautious approach towards the next hike, which is expected to bring the policy rate to 0.75 per cent, the highest level in about 30 years, despite some positive signs in the domestic economy.

The rate of inflation has been at or above the bank's two per cent target for almost three years, while major firms have promised bumper pay increases for the third year in a row in this year's wage negotiations.

The Trump administration imposed 25 per cent tariffs on steel and aluminium imports earlier this month despite vehement opposition from its trading partners. The president is also considering extending the levy to auto imports, which would deal a heavy blow to the Japanese industry.

In Japan, households are feeling the pinch from inflation, with rice prices rising at the fastest rate since comparable data became available in 1971. Prices of vegetables, such as cabbage and tomatoes, are also soaring amid unfavourable weather conditions and increasing production costs.

Japan's core consumer prices, a key indicator for the BOJ, rose 3.2 per cent in January from a year earlier, the fastest pace in 19 months. The inflation rate has been at or above the bank's two percent target since April 2022.

To mitigate the impact, many Japanese firms agreed to lift salaries in this year's labour-management wage negotiations, with the average increase reaching 5.46 per cent, according to the Japanese Trade Union Confederation's preliminary survey released last week.

At the press conference, Ueda said economic indicators are generally moving on track, although the wage data were a little stronger than the bank expected.

Under Governor Ueda, the BOJ ended its negative rate policy in March last year and increased its policy rate in July and January.

Many market players expect the next rate hike to come around the summer, forecasting the bank will tighten its monetary policy roughly every six months, based on the timing of recent hikes.

-- BERNAMA-KYODO