IMF Urges BOJ to Maintain Rate Flexibility Amid Tariff Uncertainty

The International Monetary Fund (IMF) has urged the Bank of Japan (BOJ) to remain flexible and data-driven in its approach to future interest rate hikes amid rising uncertainty caused by U.S. tariffs. IMF officials, including Japan mission chief Nada Choueiri, highlighted that increased tariffs—especially on cars and auto parts—are dampening Japan's economic outlook, lowering growth forecasts for 2025 and discouraging business investment. The IMF expects Japan's economy to grow by only 0.6% in 2025, a downgrade attributed largely to trade tensions. Many Japanese firms are postponing investment decisions until there is greater clarity on global trade developments. As a result, the BOJ is likely to delay further interest rate hikes and may need to maintain accommodative policy for longer, with inflation not expected to reach the 2% target until 2027. Clear communication from the BOJ about its policy decisions and data interpretation is considered crucial during this period of heightened risk.