International Monetary Fund (IMF) stated that the Japanese economy is facing dual pressures of growth and inflation due to increased uncertainty in US tariff policies and weakened global trade prospects. It is expected that the Bank of Japan (BOJ) will postpone its planned interest rate hike.
Nada Choueiri, Deputy Director of the IMF’s Asia Pacific Department and Responsible for Japan Affairs, in an interview with Reuters, stated that the new tariff policy pushed by US President Trump, along with potential international retaliatory actions, is weakening business confidence. She noted, “Many businesses are choosing to delay investments and salary adjustments, waiting to see how the situation unfolds, which will further suppress economic activity and price growth momentum.”
In this context, the Bank of Japan is likely to delay the timing of interest rate hikes to avoid premature tightening of policies, and will decide based on economic performance whether to continue maintaining its current accommodative stance.
According to the latest IMF “World Economic Outlook” report, the estimated growth rate for the Japanese economy in 2025 and 2026 is both 0.6%, significantly lower than the initial forecasts at the beginning of the year. In terms of prices, the IMF expects that Japanese inflation will not reach the BOJ’s target of 2% until 2027, a year later than originally anticipated.
Choueiri further pointed out that if domestic demand faces significant shocks, the Bank of Japan does not rule out increasing the degree of policy accommodation to support a rebound in price momentum.
Despite the temporary reduction of the 24% tariff on Japanese goods by the US to 7% until July, the basic 10% tariff and the 25% high tariff on automobiles remain in effect, posing significant pressure on Japan’s export-oriented economy.
Facing rising energy and living costs, Japanese Prime Minister Shigeru Ishiba announced on Tuesday (April 22) a reduction in gasoline prices and subsidies for electricity bills. Some parliamentarians have even advocated for a temporary reduction in consumption tax to ease the burden on households. However, the IMF explicitly opposes this measure.
Choueiri stated, “If the economic impact of tariffs does indeed expand, the government can provide limited, targeted, and timely support, rather than large-scale general fiscal stimulus.” She emphasized that Japan still needs to raise consumption tax in the medium term to ensure fiscal sustainability and manage debt risks.
Despite the recent strength of the yen against the US dollar, the IMF pointed out that with the resilience, predictability, and overall stability of the Japanese economy, the yen remains one of the major reserve currencies globally for hedging risks.
“The commitment of Japan to maintaining a flexible exchange rate system helps absorb external shocks, promote economic adjustments, and IMF supports this,” added Choueiri.
(This article referred to relevant reports from Reuters)