The new US tariffs are expected to hit Japan’s economy hard, particularly affecting export companies at first. If these tariffs reduce profits for exporters, this could lead to negative effects on households and businesses, hurting consumer confidence. Right now, Japan is facing negative real wage growth, which is affecting consumption and the overall economy. US tariffs could also reduce winter bonus payments for companies, which might influence next year’s wage negotiations. Although wage growth may slow temporarily because of these tariffs, it is expected to pick up again soon after. Even so, consumption is likely to see a steady increase as real wages gradually improve. These changes do not indicate that the Bank of Japan will raise interest rates anytime soon. The Governor of the Bank has mentioned that Japan’s economy is on a moderate path to recovery. However, recent comments from the Governor have led to a drop in the yen’s value. There are different views on the best pace for the Bank of Japan to reduce its bond purchases. The text explains how the recent US tariffs could affect Japan’s economic activity, especially through pressure on exporters’ profits. Since Japan relies heavily on exporting goods, any loss in revenue can impact corporate earnings and eventually households, especially regarding bonuses and regular wages. Currently, even with some nominal wage improvements, Japan’s real wages (adjusted for inflation) are still negative. This means households have less purchasing power, which slows down consumer spending, casting doubt on overall economic growth. Bonuses, especially those given in winter, may shrink due to lower corporate profits, affecting annual wage negotiations and workers’ earnings into the next year. Nonetheless, it is expected that real wages will gradually recover, which will help boost consumption over time. This does not indicate an urgent need for interest rate changes. Recent comments from Governor Ueda show signs of continued, moderate economic growth, and the central bank is sticking to its current strategy. However, Ueda’s remarks have caused the yen to weaken. A weaker yen can increase costs for imports, particularly energy, which Japan relies on. Yet, it may also give some exporters relief from the pressure of tariffs on their margins. Regarding monetary policy, there is ongoing debate about how quickly the Bank should reduce bond purchases. While inflation is above target at times, the current wage and consumption data do not support a rapid reduction. This mixed information suggests that there might be fewer asset reductions from the balance sheet in the near future than some market participants had anticipated. For traders in options and futures, this situation calls for careful monitoring of fixed-income flows and currency positions. The impact of bonus season—and subsequent salary negotiations—could change interest rate expectations faster than the Bank currently predicts. While the bias may lean towards being dovish, there is potential for gaps to appear. The yen’s recent responses to policy comments indicate it is very sensitive to tone, not just substance. With this in mind, we will closely watch private-sector forecasts and any sudden changes in household spending, particularly after bonuses are distributed or reduced. These data points will be crucial in shaping expectations about wage trends, policy timing, and volatility in related assets. Staying ahead of changes in domestic consumption will be vital.

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