How Trump Set The Bank Of Japan Back 17 Years

As Kazuo Ueda sees his legacy flash before his eyes, the Bank of Japan governor has Donald Trump to thank.

To say Ueda’s 2025 is getting “trumped” would be quite the understatement. He began the year riding high as his policy board hiked rates to the highest in 17 years — 0.5%. By now, the Ueda BOJ was almost universally expected to have hiked rates to 0.75% at least — if not significantly more.

That was before Trump launched a tariff arms race. The fallout hit Japan hard as inflation outpaces wages and household demand slows. With Thursday’s decision not to raise rates, it’s fair to wonder if posterity will remember Ueda much the way investors do Toshihiko Fukui, who headed the BOJ from 2003 to 2008.

Back then, Fukui managed to do what no BOJ governor had before: end quantitative easing. Along with getting the BOJ out of the hoarding stocks and bonds business, Fukui achieved short-term rates as high as 0.50% during a 2006-2007 tightening cycle.

As the economy slowed, though, the Tokyo political establishment struck back. The pressure to drop rates back to zero came fast and furious. By 2008, when Lehman Brothers crashed, Fukui’s successor, Masaaki Shirakawa, was beginning the process of restoring QE and cutting rates back to zero.

Is the Ueda BOJ about to repeat this reversal?

Takeshi Yamaguchi, an economist at Morgan Stanley MUFG, is still “pricing in roughly a 50% probability of a hike” at the December BOJ meeting. A tightening move would likely be delayed if the U.S. economy or market drastically weakens or a snap Japanese election is announced. Still, a December move is “now Yamaguchi’s most likely base case.”

Count U.S. Treasury Secretary Scott Bessent firmly in the camp that the BOJ should be hiking rates. And at a moment when he and Trump are demanding that the Federal Reserve slash borrowing costs.

“The government’s willingness to allow the Bank of Japan policy space will be key to anchoring inflation expectations and avoiding excess exchange rate volatility,” Bessent said on social media Wednesday.

Yet “not even U.S. Treasury Secretary Scott Bessent’s suggestion for Tokyo to give the BOJ policy space is likely to sway the central bank from holding steady this week,” argues Taro Kimura at Bloomberg Economics. “Modest U.S. pressure pales next to its concern over triggering another global market jolt.”

Jonas Goltermann, economist at Capital Economics, finds a middle ground, saying “we think that Bessent will eventually get his way, and that the yen will rebound as the monetary policy gap between the U.S. and Japan gradually shrinks.”

The U.S. is at odds with the new Japanese Prime Minister, Sanae Takaichi, who wants the BOJ to keep rates steady or lower. Even as Takaichi makes nice with Trump, the economic hits continue to come.

“Japanese manufacturers are feeling squeezed on all sides,” says Stefan Angrick, economist at Moody’s Analytics. “Higher U.S. import tariffs under the U.S.-Japan trade deal are cutting into shipments, a hit we estimate will trim at least 0.5% from GDP.”

While recent talks between Trump and Asian trade partners offered some clarity, Angrick adds, “the overall trade outlook remains fraught with risk. At home, sticky inflation is squeezing consumers. Tokyo CPI data released earlier Friday showed headline inflation climbing to 2.8% year over year from 2.4% in September as reduced government support pushed energy prices higher.”

Overall, “demand-driven price pressure is still scarce, and wage gains will likely slow as manufacturers slash costs,” Angrick concludes. “We expect the Bank of Japan to hold rates until January 2026, though fresh yen depreciation could prompt a hike in December.”

Or not. The odds that Trump has gotten tariffs out of his system are even lower than the BOJ hiking rates any time soon. As the White House keeps sending fresh headwinds into the global economy, the BOJ’s best odds of normalizing rates may be going awry in real time.