BOJ to cut growth forecast as US tariffs hit, sources say

TOKYO: The Bank of Japan is set to cut its economic growth forecasts at its April 30-May 1 policy meeting as U.S. President Donald Trump’s tariffs heighten risks to a fragile, export-reliant recovery, said three sources familiar with its plans.

With markets still volatile due to Trump’s back-and-forth comments on tariffs, the central bank is widely expected to hold off raising interest rates from the current 0.5%.

In a quarterly outlook report due on May 1, the board is likely to slash its economic growth forecast for the current fiscal year that began in April, the sources said on condition of anonymity as they are not authorised to speak publicly.

Under current forecasts made in January, the BOJ expects the economy to expand 1.1% in fiscal 2025.

There is no consensus within the BOJ yet on the extent of damage from Trump’s tariffs, which will partly depend on whether Japan can win exemptions from U.S. tariffs in bilateral negotiations that begin this week, the sources said.

The key would be whether the BOJ can maintain its baseline scenario that Japan’s economy will sustain a moderate recovery and keep underlying inflation on course to meet its 2% target, they said.

“It’s clear U.S. tariffs will hurt Japan’s economy. What’s less clear is whether the hit is big enough to derail what has so far been a steady uptrend in inflation,” one of the sources said, a view echoed by the other two sources.

So far, the dominant stance within the BOJ is that Trump’s tariffs may delay, but not derail, progress in sustainably achieving its 2% inflation target - a prerequisite for further interest rate hikes.

In a newspaper interview published on Wednesday, BOJ Governor Kazuo Ueda reiterated the bank’s resolve to continue raising interest rates at an “appropriate” pace.

But he also said a policy response may be required depending on the damage to Japan’s economy from Trump’s policies, signalling the chance of a pause in the bank’s rate-hike cycle.

The BOJ may drop further hints on its views on the impact of Trump’s tariffs when its board member, Junko Nakagawa, delivers a speech and holds a news conference on Thursday, analysts said.