Bank of Japan signals readiness for more rate hikes, sees tariff impact as temporary growth slowdown

[Japanese Flag and Economic Downturn With Stock Exchange Market Indicators in Red]
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The Bank of Japan (BOJ) said that it is keeping the door open for further interest rate hikes, according to a Summary of Opinions released following its September meeting.

Policymakers stressed they must judge the future economic path "without any preconceptions" but are prepared to act if their forecasts for economic activity and prices materialize. Despite the impact of US tariffs, which were recently cut to 15%, the Japanese economy is only expected to moderate temporarily.

On the price front, the central bank projects that CPI growth will remain below 2% in fiscal year 2026 as cost pressures related to food begin to ease.

The meeting revealed a division among the board on the appropriate timing for the next move. Some members argued it might be time to consider another hike, noting it has been more than six months since the last adjustment. However, others countered that the effect of earlier hikes to 0.5% has been "extremely limited."

Given uncertainty over the U.S. slowdown, many agreed that accommodative conditions should be maintained and that a surprise hike should be avoided.

SEPARATELY, Japan’s retail sales fell 1.1% in August [https://seekingalpha.com/news/4500028-japan-retail-sales-and-industrial-output-unexpectedly-fall-amid-broader-economic-headwinds], missing expectations of a 1% increase and recording the first drop since February 2022, while industrial output also declined more than anticipated.

Japan’s housing starts fell 9.8% year-on-year in August 2025, well below market forecasts of a 4.8% decline and following a 9.7% drop in the previous month.

The Nikkei 225 Index [https://seekingalpha.com/symbol/NKY:IND#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] slipped 0.3% to around 44,900 while the Topix shed 0.2% to 3,125 on Tuesday, marking a third straight decline. The Japanese yen [https://seekingalpha.com/symbol/USD:JPY#hasComeFromMpArticle=false#source=section%3Amain_content%7Cbutton%3Abody_link%7Cfirst_level_url%3Anews] slipped to around 148.7 per dollar on Tuesday, pausing a two-day rally as investors digested mixed signals from the Bank of Japan.

MORE ON JAPAN

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Japan retail sales and industrial output unexpectedly fall amid broader economic headwinds

Japan Prime Minister Ishiba to step down

* BoJ minutes reveal ongoing caution on economy amid inflation & market risks [https://seekingalpha.com/news/4461933-boj-minutes-reveal-ongoing-caution-on-economy-amid-inflation-market-risks#source=url_first_level%3Amarket-news%7Csection%3Amarket-pulse%7Csection_asset%3Anews_title]
* Japan's manufacturing PMI revised upward to 48.7 in April [https://seekingalpha.com/news/4438674-japans-manufacturing-pmi-revised-upward-to-487-in-april]
* Japan to spend ¥388 billion on relief measures for U.S. tariff impact [https://seekingalpha.com/news/4452761-japan-to-spend-388-billion-on-relief-measures-for-us-tariff-impact]