US-Japan Trade Accord Opens Path for BOJ Rate Hike in 2025

The Bank of Japan is weighing the possibility of a second interest-rate increase later this year after the United States and Japan reached a trade accord that officials judge reduces one of the main uncertainties clouding the economic outlook, according to people familiar with the matter. Sources say policymakers could begin signalling a less downbeat assessment of growth and inflation as soon as the July 30–31 policy meeting, where a quarterly outlook report is due. Deputy Governor Shinichi Uchida has already noted that the trade deal strengthens the likelihood of sustainably achieving the BOJ’s 2% inflation target—a prerequisite for further tightening. The central bank lifted its short-term rate to 0.5% in January, the first move since exiting a decade of massive stimulus last year. Expectations for another hike have pushed the two-year government bond yield to a near four-month high of 0.845%. While officials want to study data through the autumn, the improved trade backdrop is seen clearing a path for action should consumption and exports hold up against lingering U.S. tariff risks.