MNI: BOJ Warns Of Forex Impact on Inflation; Cites Four Risks

The Bank of Japan warned of the inflationary risks posed by sharp fluctuations in foreign exchange markets and emphasised the complex channels through which global trade policy changes could affect the Japanese economy, according to the full text of its April Outlook Report released Friday.

The BOJ stated it will continue to monitor closely the economic and price impacts using its nationwide network of head office, branches, and overseas offices. It highlighted that significant shifts in trade policies in other countries could influence Japan’s economy through several key channels, listing four specific risks.

First, a sharp rise in global uncertainty could hurt Japan’s capital goods exports by dampening worldwide demand for business investment, while also weakening domestic demand due to postponed consumption and investment. Second, U.S. tariff hikes could erode the price competitiveness of Japanese exports versus similar goods made locally in the U.S. Third, slower global growth or falling trade volumes would put downward pressure on Japan’s real exports. Lastly, the BOJ noted that tariffs could squeeze profits of Japanese firms’ overseas subsidiaries, reducing investment income and ultimately weighing on overall corporate earnings.

The BOJ board decided to hold the policy rate at 0.5% on Thursday. (See MNI BOJ WATCH: Unchanged; Ueda Insists Rates To Rise Gradually)