Kazuo Ueda, the new governor of the Bank of Japan, made waves this week by releasing an unprecedentedly large downward revision of Japan’s future economic growth forecast. This promise kept their statement from looking too deflationary on Thursday. They cut their growth projection for next year—to 0.7%, down from an expectation of 1.0%. This amendment makes clear the growing alarm over the continuing, and deepening, trade war and its impact on the Japanese people.
The announcement from Ueda’s bank came just a day after the U.S. Commerce Department reported that the trade conflict has adversely affected economic growth in the United States. These exciting developments raise significant questions. Or, consider their potential effects on economies very much tied to American trade policies, like Japan.
The Bank of Japan’s revised forecast highlights the challenges facing Japan’s economy, particularly as consumer spending has decelerated during the quarter. What’s more, businesses have started stockpiling imported goods in preparation for new tariffs they know are coming, adding another layer of panic to the economy.
In fact, China visited us with some really scary news this month. National Factory activity contracted in April, falling at the quickest pace in 16 months. This contraction underscores not just the burden of the trade war, but its wide-spreading ripple effects. Second, it’s wreaking havoc all over the world, particularly on the US’s Asian trading partners.
Japan will remain a pivotal ally for the early months of the Trump administration. It takes a proactive role in setting the agenda to see new trade agreements concluded. Multiple experts have told us that finalizing such a complex trade deal between the United States and Japan is virtually impossible. The many complex issues at stake almost totally preclude a speedy outcome.
The Trump administration has made clear that it’s already deep in negotiations with more than a dozen countries on trade deals. In the days and weeks ahead, officials expect to release a number of memoranda of understanding. These written submissions will guide the US negotiators’ instructions toward progressive new trade deals.
Bank of Japan Governor Kazuo Ueda’s bank has tied its new pessimistic view of the economy straight to the deepening trade war.
“It is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them.” – The Bank of Japan
President Donald Trump has emphasized that while countries may desire to engage with the U.S., the U.S. does not necessarily need them for trade.
“They want us. We don’t need them.” – Donald Trump
Amidst these developments, Trump has mentioned potential trade agreements with countries such as Japan, South Korea, and India, highlighting his administration’s focus on reshaping international trade relationships.