By Leika Kihara
TOKYO (Reuters) – Bank of Japan Governor Kazuo Ueda said the central bank must scrutinise “without preconception” whether the economy is on track to meet its projection, suggesting the chance of a pause in interest rate hikes as U.S. tariffs jolt markets.
While still below the central bank’s 2% target, Japan’s underlying inflation is gradually accelerating as wage hikes continue, Ueda said on Wednesday, adding that economic and price conditions were moving roughly in line with its forecasts.
“But we need to pay due attention to risks, especially recent heightening uncertainty over developments in each country’s trade policy,” Ueda said in a speech, highlighting the BOJ’s alarm over the potential damage from U.S. tariffs.
Ueda reiterated that the BOJ will continue to raise interest rates if the economy continues to improve and move in line with its current projections.
“We must, however, scrutinise without preconception at each policy meeting whether our forecasts will indeed materialise,” Ueda said, suggesting the BOJ could stay on a holding pattern until there is more clarity on the impact of U.S. tariffs.
The remarks come ahead of the BOJ’s next policy meeting on April 30-May 1, when it is seen keeping interest rates steady at 0.5% and issuing fresh quarterly economic and price forecasts.
The new forecasts, which will extend through fiscal 2027 for the first time, will offer clues on how the BOJ sees the balance between risks to growth from U.S. President Donald Trump’s tariffs and domestic inflation pressure from rising food costs.
The BOJ exited a radical stimulus programme last year and raised interest rates to 0.5% in January on the view Japan was on the cusp of sustainably achieving its 2% inflation target.
Ueda has repeatedly stressed the bank’s readiness to keep hiking rates to levels that neither cool nor overheat growth – seen by analysts as somewhere around 1-1.5%.
But Trump’s decision to impose sweeping tariffs worldwide, including on Japan, has complicated the BOJ’s plan to continue raising interest rates from still-low levels.
Most economists expect Trump’s tariffs to knock 0.6 percentage point off Japan’s economic growth in the current fiscal year ending in March 2026, a survey by the Japan Center for Economic Research released on Wednesday.
The survey, conducted between March 27 and April 3, also showed most economists projecting the BOJ to hike rates again in the latter half of this year.
Speaking earlier in parliament, Ueda said the BOJ’s past decisions to raise interest rates were made with a focus on underlying inflation, which has gradually accelerated toward 2%.
The decisions were also based on the view that removing excessive monetary support now will help the BOJ avoid raising rates sharply later to combat a too-high inflation rate, and ensure Japan’s economy achieves sustainable growth, he added.
When asked by a lawmaker to deliver stronger language committing to combat economic headwinds from tariffs, Ueda said only that there was still uncertainty about U.S. trade policy.
“We will scrutinise developments, analyse how they affect the economy, prices and markets to come up with solid projections, and guide policy appropriately,” Ueda said.
(Reporting by Leika Kihara; Editing by Christopher Cushing and Sam Holmes)
