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Summary of Opinions at the Monetary Policy Meeting 1,2
on April 30 and May 1, 2025

May 13, 2025
Bank of Japan

1. Opinions on Economic and Financial Developments

Economic Developments

  • Japan's economy has recovered moderately, although some weakness has been seen in part. Japan's economic growth is likely to moderate due to the effects of trade and other policies in each jurisdiction. Thereafter, however, Japan's economic growth rate is likely to rise, with overseas economies returning to a moderate growth path.
  • Negative demand shocks are expected, including the impact of increased uncertainties on business fixed investment and household consumption, a decrease in the volume of exports to the United States and a deterioration in Japan's export profitability, the impact of a deterioration in global economic activity and of the yen's appreciation on exports from Japan, and negative wealth effects due to a decline in stock prices. While positive supply shocks due to factors such as a decline in commodity prices are also expected, these shocks are likely to be smaller than the demand shocks. Overall, U.S. tariff policy will exert downward pressure on both economic activity and prices in Japan.
  • The outlook presented in the January 2025 Outlook for Economic Activity and Prices (Outlook Report) has been significantly affected by U.S. tariff policy. The increase in U.S. tariffs will push down Japan's economic activity and prices. This is not only because Japan's exports will be pushed down, but also because the global economy as a whole will be pushed down, through a reduction in trade.
  • How U.S. tariff policy will turn out and how firms respond to the policy are both fluid. Therefore, the Bank's outlook for economic activity and prices can only be provisional at this point; it could be revised considerably depending on developments.
  • Since it took office, the new U.S. administration has given priority to policies, such as tariffs, that have a negative impact on economic growth. However, if the administration were to conduct policy changes, such as reducing domestic taxes, the growth rate of the U.S. economy could be higher than expected.
  • As reciprocal tariffs will be imposed on jurisdictions around the world, it is unlikely that the tariffs will lead to a deterioration in the relative competitiveness of Japanese firms. Therefore, it is possible that the decline in profits of Japanese firms will be limited.
  • While the impact of the increase in U.S. tariffs remains highly uncertain, if high tariffs are imposed for a prolonged period, this may lead Japanese firms, mainly exporting firms -- which will be directly affected by the tariffs -- to proceed with responses such as the following: business realignment, selection of business partners to strengthen value chains, streamlining of multilayered subcontracting chains, and moves to shift production sites to the United States. There are concerns that these responses will affect small and medium-sized firms, which account for about 70 percent of employment in Japan and are financially relatively weak.
  • As seen in the share of exports in GDP, for example, Japan's economy is not heavily reliant on trade. Therefore, the Bank should assess economic and financial developments in a considered manner, paying attention not only to developments in U.S. tariff policy, but also to domestic factors.
  • So far, there has been no pronounced "dash for cash" in global financial and capital markets. That said, close attention continues to be warranted on factors such as developments in non-bank financial intermediaries (NBFIs).

Prices

  • Underlying CPI inflation is likely to be sluggish, mainly due to the deceleration in the economy; thereafter, however, it is expected to increase gradually, as the economic growth rate rises. In the second half of the projection period of the April 2025 Outlook Report, it is likely to be at a level that is generally consistent with the price stability target.
  • Even with the impact of tariff policies and other factors that is assumed in the April Outlook Report, prices are currently expected to be at a level that is generally consistent with the price stability target through the second half of the projection period, albeit with fluctuations, as they continue to be supported by wage growth and tight labor market conditions.
  • U.S. tariff policy is likely to push down Japan's economy through both trade and sentiment. On the price front, while tariffs could either push up or push down prices in Japan through supply-chain disruptions and deceleration in Japan's economy, both of these factors could have a negative impact on wages; therefore, U.S. tariff policy is highly likely to exert downward pressure on Japan's underlying inflation.
  • Attention is warranted on the fact that prices are expected to continue increasing at around 2 percent until fiscal 2027, and that there are upside risks to prices, such as global supply-chain disruptions.
  • As tariff shocks can be considered short-term price shocks, it is possible to conclude theoretically that tariff shocks do not have practical effects in the long term. Therefore, at this point, from a somewhat long-term perspective, U.S. tariff policy and its uncertainties will not affect Japan's underlying inflation and potential growth rate.

2. Opinions on Monetary Policy

  • If its outlook for economic activity and prices will be realized, the Bank, in accordance with improvement in economic activity and prices, will continue to raise the policy interest rate and adjust the degree of monetary accommodation. In this regard, considering the extremely high uncertainties, it is important for the Bank to judge whether the outlook will be realized, without any preconceptions.
  • The outlook presented by the Bank shows that the price stability target of 2 percent is likely to be realized, and real interest rates have been significantly negative. Given this, the Bank's stance to continue to raise the policy interest rate is unchanged. In this regard, amid the extremely high uncertainties -- including the future course of tariff negotiations that is assumed in the outlook -- the outlook itself could change, both upward and downward. Therefore, it is necessary to examine the likelihood of realizing the outlook and the risks to the outlook.
  • There are high uncertainties regarding the outlook for economic activity and prices, and the likelihood of realizing the outlook is not as high as before. It will be necessary for the Bank to examine the possibility of both upward and downward deviations from its outlook and conduct monetary policy as appropriate, based on this examination.
  • The Bank needs to wait and see until developments in U.S. tariff policy have become somewhat settled.
  • U.S. tariff policy could lead Japanese firms to conduct excessive cost-cutting, shift their stance in the direction of contracting their businesses -- such as by restraining wage hikes and investment -- and bring about a hollowing out of industries. Close attention is thus warranted on whether there will be a change in the more active sentiment of firms or in trends in bankruptcies. The Bank needs to carefully examine the impact of U.S. tariff policy on Japan's economy, and it is therefore appropriate for the Bank to maintain the current monetary policy.
  • While the Bank of Japan will enter a phase of pausing its policy interest rate hikes with a deceleration in the U.S. economy, it should not be too pessimistic, and it will be required to conduct monetary policy in a nimble and more flexible manner, such as by conducting further policy interest rate hikes in response to policy changes in the United States.
  • The most important factor with regard to achieving the price stability target is developments in firms' wage- and price-setting behavior and in firms' and households' inflation expectations. In that sense, there is little risk of the economy going back to a state in which wages and prices do not increase easily. Therefore, it is unlikely that underlying CPI inflation, which has been increasing toward the price stability target of 2 percent, will turn to a decline.
  • It has been more than a year since the Bank moved away from the lower bound on interest rates. In this situation, economic activity and prices have been firm, and the current monetary policy stance is highly accommodative.
  • Regardless of the outlook for economic activity and prices that is developed at this point, it could be revised, either in a positive or a negative direction, depending on the course of U.S. tariff policy. This means that the Bank's policy path may change at any time. Therefore, at this particular juncture, the Bank should communicate this point candidly to the market.
  • Market participants have developed their views on the timing of policy interest rate hikes and continued to revise their views by applying the Bank's basic thinking on monetary policy conduct to information obtained from home and abroad, without seeking direct indications from the Bank. It is therefore desirable for the Bank to continue to communicate in a way that this situation can be maintained.
  • During the market turmoil in April, the Japanese government bond (JGB) markets were divided by maturity, as seen, for example, in the significant rise in yields on super-long-term JGBs. In view of the interim assessment of the plan for the reduction of the purchase amount of JGBs, it is important for the Bank to carefully examine supply and demand conditions and liquidity of JGBs by maturity and the variety of views of market participants from different business types.
  • Investors need to be cautious about investing in super-long-term JGBs when market expectations regarding the interest rates on these bonds are particularly high and the markets are nervous. While it is natural for central banks to take appropriate account of market views, if a central bank is continually over-flexible in response to these views, this flexibility itself could make the bank's responses less predictable, thereby increasing uncertainties in the markets. The Bank should avoid, as much as possible, actions that lead to such uncertainties.

3. Opinions from Government Representatives

Ministry of Finance

  • The government will pay close attention to developments in tariff negotiations with the United States and to the impact of U.S. tariff measures on Japan's export industries, on small and medium-sized firms and regional economies affected by those tariffs, and on people's daily lives. The government will do its utmost to provide necessary support, such as for financing.
  • The government expects the Bank to conduct monetary policy as appropriate toward sustainable and stable achievement of the price stability target of 2 percent while closely cooperating with the government and paying due attention to factors such as economic developments at home and abroad. Moreover, it expects the Bank to communicate effectively with financial and capital markets, including through its dissemination of information.

Cabinet Office

  • Japan's economy is recovering at a moderate pace, while there is uncertainty arising from U.S. trade policy and other factors. It is necessary to pay even more attention to this uncertainty, together with factors such as the effect on private consumption of continued price increases.
  • In line with the emergency response package to address U.S. tariff measures, the government will do its utmost to provide necessary support. It will also push forward with measures to expand the trend of wage hikes to small and medium-sized firms and regional economies.
  • The government expects the Bank to conduct monetary policy as appropriate toward achieving the price stability target of 2 percent in a sustainable and stable manner, while closely cooperating with the government.
  1. English translation prepared by the Bank's staff based on the Japanese original. Return to text
  2. "Summary of Opinions at the Monetary Policy Meeting" is made through the following process: (1) each Policy Board member and government representative makes a summary of opinions that she/he presented at the Monetary Policy Meeting (MPM) under a certain word limit and submits this to the Governor of the Bank of Japan, who serves as the chairman of the MPM, and (2) the chairman edits those opinions as his responsibility. Return to text