BOJ Flags Trade Uncertainty as Key Downside Risk to Japan’s Economy

Bank of Japan Deputy Governor Shinichi Uchida cautioned in a 23 July speech that "extremely high" uncertainty over global trade policy is tilting risks to Japan’s economic activity and prices to the downside. While the central bank will keep lifting interest rates if growth and inflation develop as projected, Uchida said policymakers must remain alert to the possibility that protracted tariffs could weaken corporate profits and wage gains. In its quarterly Outlook for Economic Activity and Prices released on 31 July, the BOJ echoed Uchida’s concerns. The report said the balance of risks to inflation is now "roughly balanced," but warned that the economic outlook remains skewed to the downside because of unresolved trade negotiations. It added that a prolonged period of policy uncertainty could prompt companies to prioritise cost-cutting and slow investment, potentially dampening both domestic and global growth. The central bank concluded that, given the elevated uncertainty, it will scrutinise incoming data "without preconceptions" to determine whether further policy adjustments are necessary to secure price stability while supporting the economy.