The International Monetary Fund expects the Bank of Japan to delay any imminent rate hikes due to tariffs.
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USDJPY has found some support near the 2024 lows after safe haven flows had boosted the yen. The lack of imminent hikes could see the dollar find further buyers.
The Bank of Japan is likely to push back the timing of further rate hikes as tariff uncertainty has increased the downside risks to growth and inflation in Japan, a senior International Monetary Fund official said.
The IMF was delivering its latest outlook for global economic growth in the major economies. The IMF still expects inflation will return to the BOJ’s 2% target, though that will happen in 2027 rather than in 2026, according to the group.
“A lot of companies are likely now on the fence, not carrying out their investment plans and waiting for clarity on what’s going to happen. This is postponing investment decisions as well,” Nada Choueiri said.
“We do see that if our reference scenario materializes, the BOJ interest rate increases will be pushed backwards in time”. Under a scenario where growth is dampened, the accommodation may need to be sustained for longer”.
Analysts in April said they expected the BOJ would hold rates steady through June, with a 25-basis-point hike expected next quarter among a slight majority of respondents.
In its latest World Economic Outlook, the IMF said it expects Japan’s economy to expand 0.6% in 2025, -0.5% from January. It also expects growth of 0.6% in 2026, down -0.20% from January.
“The balance of risks is on the downside for growth and for inflation,” due to global uncertainty caused by higher US tariffs. That could lead to a drop in consumption and discourage firms from larger pay hikes in next year’s wage talks, Choueiri added.
