IMF predicts delay in further BOJ rate hikes due to trade uncertainty

The Bank of Japan (BOJ) may delay further interest rate hikes due to uncertainty fueled by US trade policy, according to Nada Choueiri of the International Monetary Fund (IMF). She argues that American tariffs and potential retaliatory measures from other countries could dampen business sentiment and slow wage growth in Japan.

According to IMF forecasts, inflation in Japan is now expected to reach its 2% target by 2027, a year later than previously projected. Persistent uncertainty is prompting local firms to delay investment decisions, further reducing the likelihood of near-term rate hikes. If economic conditions worsen, the BOJ will need to maintain its loose monetary policy for even longer, Choueiri suggests.

Analysts surveyed by Reuters expect the central bank to keep borrowing costs unchanged until June. However, many respondents anticipate a 25 basis point rate hike in the third quarter. Meanwhile, the IMF has downgraded Japan’s GDP growth forecast from 1.1% to 0.6% for 2025 and from 0.8% to 0.6% for 2026.