Bank of Japan Maintains Optimistic Outlook but Warns of Wage Uncertainty Amid U.S. Tariff Impact

The Bank of Japan (BOJ) on Monday maintained its optimistic outlook for the economy but warned of uncertainties stemming from the potential impact of U.S. tariffs on corporate profits, signaling a cautious approach before deciding on further rate hikes.

In its quarterly report on regional economies, the central bank kept its assessment unchanged for eight of the nine regions, noting that they were either “recovering moderately” or “picking up pace,” while downgrading the view for one region.

However, BOJ’s regional branch managers highlighted growing uncertainty over how U.S. tariffs might affect corporate spending plans, according to a summary of their latest meeting.

“Wage growth is likely to continue as a trend due to the structural labor shortage,” said Kazuhiro Masaki, manager of the BOJ’s Osaka branch, at a press conference. “But it’s difficult to predict what will happen in next year’s wage negotiations, as the effects of tariffs on corporate earnings will start to emerge.”

He added, “At this point, it’s unclear how long it will take before we have a clearer picture of the impact of tariffs.”

This regional assessment will be among the key factors BOJ considers at its next policy meeting on October 29–30, when it decides whether to raise interest rates further or keep them steady at 0.5%.

BOJ Governor Kazuo Ueda recently said the bank needs to see more data to determine whether Japanese companies can withstand the effects of U.S. tariffs while continuing to increase wages and capital investment.

The summary of regional managers’ discussions noted, “Some areas reported that if U.S. tariffs lead to a sharp decline in profits, companies may need to curb wage hikes.”

However, others pointed out that firms still face pressure to raise pay due to labor shortages, higher minimum wages, and rising food prices.

While U.S. tariffs have weighed on exports and industrial output, the summary added that demand for artificial intelligence (AI)-related orders has surged in some regions, providing a cushion for local economies.

Many firms plan to continue increasing capital expenditure to streamline operations and meet rising IT-related demand, though some have delayed or reconsidered their investment plans due to uncertainty over U.S. trade policy.

The BOJ began phasing out its decade-long ultra-loose monetary stimulus last year, raising interest rates to 0.5% in January, as Japan appeared close to achieving its 2% inflation target on a sustained basis.

Governor Ueda has signaled that the central bank is prepared to raise rates further if steady wage growth and resilient domestic demand strengthen the case for stable inflation in the world’s fourth-largest economy.