(April 9): Bank of Japan (BOJ) governor Kazuo Ueda highlighted growing uncertainties stemming from tariff measures, while also reiterating the central bank's existing policy stance that it will raise the benchmark interest rate if its economic outlook is realised.

“Japan’s economy and inflation have moved in line with our outlook so far,” Ueda said in a speech at a financial conference in Tokyo on Wednesday. “Still, we must be duly careful about heightened uncertainties over other countries’ trade policies in particular.”

Ueda’s comments suggest an increased level of vigilance as the BOJ waits to see how the tariff measures evolve before assessing the potential impact at home and abroad — and any required response. As of Wednesday, the US started imposing so-called reciprocal levies on goods from Japan to the tune of 24%, a measure that comes in addition to 25% levies on autos and steel implemented previously.

“We will keep raising the policy rate if our outlook is realised,” Ueda said. “On top of that, we must examine if that will be the case without any preconceptions at every monetary policy meeting.”

The Nikkei index tumbled on Wednesday in a sign of lingering unease after wild swings earlier this week. Prime Minister Shigeru Ishiba called the tariffs a “national crisis”, ahead of his talk with US President Donald Trump on Monday, in which the two leaders agreed to hold negotiations.

Shortly before Ueda’s speech, Japan’s Ministry of Finance announced that officials from the ministry would hold a so-called three-way meeting with counterparts from the BOJ and Financial Services Agency.

Following Trump’s tariff announcements, economists are focused on whether the BOJ can proceed with its normalisation process with a hike any time this year, a stark contrast to early last week, when some envisioned a potential hike as early as the next decision on May 1. 

Traders now see less than a 10% chance that the BOJ will hike the rate this year. That’s down from more than 50% early last week, according to overnight index swaps.

Ueda has raised the benchmark rate three times since March last year to 0.5% and defended those moves as he spoke in Parliament earlier Wednesday.  

“We have been gradually raising interest rates until now because if we continued to maintain low interest rates while the economic and price trends improved, there was a risk that the degree of monetary easing might become excessive, and in some cases, the rate of inflation could accelerate,” Ueda said.

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