The Bank of Japan (BOJ) maintained its cautious optimism regarding its economic outlook, but warned of uncertainty regarding the impact of US tariffs on profits.
In its quarterly report on regional economies, the BOJ used the term “improvement” or “recovery” for eight regions, while one region’s rating was downgraded.
However, the impact of tariff pressure on firms delaying investment plans was highlighted by regional branch managers.BOJ Osaka Branch Manager Kazuhiro Masaki said, “The trend of wage increases may continue due to structural labor shortages. But until the impact of tariffs on profits becomes clear, next year’s wage negotiations are uncertain.”
The regional branch meeting summary reported that despite US tariffs suppressing exports and production, some regions saw strong demand thanks to artificial intelligence (AI) investments. Some companies are reviewing their capital expenditures due to uncertainty, while others are increasing investments to improve their operations and meet their information technology needs.
Nagoya Branch Manager Hiroshi Kamiguchi stated that automotive firms’ profits have decreased due to tariffs, but US sales remain resilient. He also described Japan’s trade agreement with the US as an important step in reducing uncertainty.
Last year, the BOJ exited its 10-year expansionary monetary policy and raised interest rates to 0.5%. However, Governor Kazuo Oueda stated that, depending on the expectation that inflation could become persistent due to wage increases and domestic demand, he could also consider the possibility of raising interest rates as more data becomes available.
