U.S. trade policy poses a major risk to Japan’s economic outlook, Bank of Japan (BoJ) board member Junko Nakagawa said in a speech on Thursday. She cautioned that higher U.S. tariffs could directly hurt Japanese corporate activity, leading to declines in exports, production, capital spending, sales, and profits across a range of industries.
BoJ eyes risk from U.S. tariffs
Nakagawa also highlighted the potential for indirect effects, noting that heightened trade tensions could erode business and consumer sentiment, increase uncertainty, and trigger volatility in commodity prices and global financial markets — all of which would further strain Japan’s fragile post-pandemic recovery.
Her comments closely align with those of BoJ Governor Kazuo Ueda, who earlier this week warned during a parliamentary hearing that escalating trade frictions pose a significant downside risk to Japan’s growth prospects. The BoJ leadership appears increasingly concerned that external shocks, particularly from one of Japan's largest trading partners, could derail the domestic economy just as it shows tentative signs of exiting decades of deflationary pressures.
BoJ may pause or slow its pace of interest rate hikes
Against this backdrop, Nakagawa suggested that growing economic uncertainty might prompt the BoJ to pause or slow its pace of interest rate hikes. This more cautious stance reflects the BoJ's delicate balancing act — seeking to normalize policy after years of ultra-easy conditions without undermining the nascent recovery. Nevertheless, Nakagawa reaffirmed the central bank’s fundamental commitment to raise rates over time if the economy and inflation evolve broadly in line with their projections, emphasizing that any future policy moves would remain highly data-dependent.
Meanwhile, Japan’s economy minister Ryosei Akazawa is currently in Washington for high-level trade discussions, seeking to protect Japan’s economic interests amid the escalating rhetoric. His trip comes as U.S. President Donald Trump claimed “big progress” following his unexpected personal intervention in the ongoing negotiations. While details remain scarce, Trump’s remarks fueled cautious optimism that a compromise might be possible, potentially averting the worst-case scenarios that markets fear.
Overall, Nakagawa’s speech underlined the increasing interconnectedness of trade, monetary policy, and geopolitical risks — a reality that Japanese policymakers are being forced to navigate with growing care as the global economic landscape becomes more unpredictable.
