BOJ Flags Trade-War Headwinds, Hints at Rate Hikes | SchiffGold
Japan’s central bankers are juggling a stubbornly hot CPI, cooling exports, and a fresh volley of U.S. tariffs—all while investors pile into gold. In its July 30th-31st policy meeting, the Bank of Japan (BOJ) conceded the economy “has recovered moderately,” yet warned that escalating trade friction is set to sap growth “in the near term.” Consumer inflation is already running between 3.0 % and 3.5 %—triple the BOJ’s official target—largely on soaring food costs such as rice. Unsurprisingly, bullion responded: spot gold climbed to an intraday high of $3,383 on Monday after Washington’s newest tariff salvo rattled global markets.
The BOJ’s latest Outlook Report keeps headline GDP forecasts “more or less unchanged,” envisioning a modest 2025 expansion followed by an uptick once “overseas economies return to a moderate growth path.” That rosy assumption sits uneasily beside the Bank’s own risk table, which says hazards to activity are “skewed to the downside” for 2025-26. Potential growth is pegged at a meager 0.5 %, and officials caution that broad-based tariffs could “push down domestic and overseas economies” by disrupting supply chains and denting business sentiment. In other words, the Bank is counting on a global rebound it simultaneously fears may not materialize.
Prices, meanwhile, refuse to cooperate with the narrative of “transitory” inflation. The BOJ projects core CPI (excluding fresh food) to rise another 2.5–3.0 % this fiscal year before supposedly cooling to “around 2 percent” by 2027. Yet the report admits underlying inflation will “increase gradually” as chronic labor shortages boost nominal wages. Add in the possibility of logistics snags or Middle-East flare-ups sending grain and energy prices “fluctuating significantly,” and the 2 % promise begins to look aspirational at best.
Against that backdrop of weak real growth and sticky prices, policymakers find themselves cornered. Real interest rates remain “significantly low,” prompting the BOJ to say it “will continue to raise the policy interest rate and adjust the degree of monetary accommodation” so long as the projected improvement holds. The commitment, however, is hedged by a familiar escape clause: any hikes will be “data-dependent” given the “high uncertainties” around trade policy. Translation—tighten if we can, reverse course if the global slowdown bites too hard. Savers and pensioners may yet endure another bout of financial repression.
Housing investment is “relatively weak,” but corporate capex tied to digitalization and decarbonization keeps headline investment numbers afloat. The financial system is “stable on the whole,” though the BOJ is eyeing frothy real-estate prices and “knock-on effects of global market stress.” With official growth stuck near stall speed and inflation eroding yen purchasing power, it’s no surprise that ordinary Japanese—and an increasing share of global investors—are turning toward tangible stores of value. Monday’s surge in gold prices is a reminder that in periods of policy uncertainty and trade-war brinkmanship, sound money still has fans.
Bottom line: the BOJ is attempting a delicate high-wire act—nudging rates higher while hoping trade tensions dissipate and prices miraculously cool. It doesn’t take an expert to see how unlikely this sequence of events is.
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