The Bank of Japan remains poised, Governor Kuroda says "no imminent risk of policy lag" but trade war fears emerge.

The Bank of Japan decided to keep interest rates unchanged on Tuesday and decided to slow down the pace of balance sheet reduction next year, indicating a cautious approach to gradually eliminating the lingering effects of a large-scale stimulus policy that has lasted for a decade. Following the two-day policy meeting, the Bank of Japan unanimously voted, as widely expected by the market, to maintain the short-term interest rate at 0.5%. Bank of Japan Governor Haruhiko Kuroda answered questions from journalists at a press conference: On the possibility of a short-term rate hike: "I cannot comment on the possibility of a rate hike in the near term. But I can say that we will closely monitor the upcoming economic data. We also need to observe whether the current high inflation will ease and whether it will affect potential inflation. This will be a decision process that involves taking into account various data comprehensively." On uncertainty and the timing of the next rate hike: "Given the extremely high level of uncertainty, it is more necessary than ever to refer to a wide range of information when formulating policies... Although more and more sentiment surveys indicate a weakening economy, actual economic data remains strong. As for the timing of the next rate hike, it depends on our confidence in the possibility of achieving the (sustainable 2% inflation target)." On the impact of expected fiscal support on households: "Such spending is more likely to alleviate the impact of rising prices on consumption rather than push up inflation, and it will help achieve sustained consumption growth. However, on the other hand, the impact of US tariff policies may intensify in the second half of this year." On the potential risks of delaying rate hikes: "I do not believe we are currently facing this situation. Although potential inflation is accelerating, it has not yet reached the 2% target, and the rate of increase is manageable. However, we cannot rule out the risk of high inflation affecting potential inflation through raising inflation expectations." On the impact of trade tensions on corporate bonuses and wage negotiations: "Trade uncertainty may suppress the payment of winter bonuses to employees and next year's wage negotiations with labor unions. It is currently difficult to estimate the specific timing of the impact. We may need to wait for actual data or estimate (wage prospects) based on corporate profitability." On the situation in the Middle East, oil prices, and Japan's inflation outlook: "If food prices continue to rise and if the fluctuation in oil prices caused by the tense situation between Iran and Israel persists, it may affect inflation expectations and potential inflation. Therefore, we must carefully monitor the situation." On the potential impact of trade tensions: "On the other hand, the impact of trade tensions may mainly manifest through a decline in manufacturing profits. This may prompt companies to adopt cost-cutting pricing strategies again. Such risks should not be overlooked. Therefore, we need to remain vigilant against various risks." On the impact of US trade policies on economic prospects: "Even if US trade policies tend towards stability in some direction, the impact on the economy remains highly uncertain." On slowing down the pace of bond purchases from the 2026 fiscal year: "Continuing to reduce the scale of bond purchases to allow yields to more freely reflect market forces is appropriate. However, too rapid a reduction could have unexpected impacts on market stability." On the risks to the inflation outlook: "Recent data shows that consumer inflation rates fluctuate around 3%. But this is mainly due to rising import costs and rice prices... It is expected that these pressures will gradually ease. Nevertheless, the inflation outlook still faces two-way risks. We need to be aware that cost-push pressures may change household perceptions and inflation expectations, thereby affecting potential inflation." On the uncertainty of trade policy: "There is currently a high level of uncertainty surrounding trade policies in various countries. Therefore, the Japanese economy and prices face greater downside risks."