- Economic, price environment is becoming more complex
- Economic developments have changed sharply since Trump’s tariffs in April
- Tariffs could hurt demand via heightened uncertainty, which could weigh on the economy
- Firms could swallow rising costs from tariffs but this will worsen corporate profits
- In turn, that will have negative impact on wages
- Tariffs could affect Japan’s economy via financial, FX market moves also
- Still expect prices to gradually rise and withstand downwards pressure from tariffs
- Corporate profits also stay elevated despite tariffs impact
- Underlying inflation in Japan is rising moderately
- Even as economy slows, Japan likely to maintain mechanism in which wages and prices rise in tandem
- No change to our view that underlying inflation is to gradually head towards 2% target
- BOJ expected to continue hiking rates if underlying inflation accelerates to 2% as projected
- We will judge without preconception whether economic, price forecasts will materialise
He is still making a case for rate hikes down the road but the wording definitely sounds less confident than say three to four months ago. Back then, Ueda would note that economic conditions are playing out accordingly and will support the conditions for them to hike rates further. Now, he’s just mostly saying that things should play out that way but there is much uncertainty up in the air.
In case you missed it, his comments from earlier in the day here reinforces that narrative.
This article was written by Justin Low at www.forexlive.com.
