BOJ's Ueda says central bank may need to respond if US tariffs hurt economy, Sankei reports

By Leika Kihara

TOKYO (Reuters) -Bank of Japan Governor Kazuo Ueda said the central bank may need to take policy action if U.S. tariffs hurt the Japanese economy, the Sankei newspaper reported on Wednesday, signalling the potential to pause the bank's rate-hike cycle.

Since February, risks surrounding U.S. President Donald Trump's policies have "moved closer towards the bad scenario" the BOJ had envisioned, Ueda said in an interview, adding that recent developments have already affected corporate and household confidence.

Ueda said the BOJ will continue to raise interest rates "at an appropriate pace" if economic and price developments move in line with its projections.

"But we will scrutinise without pre-conception the extent to which U.S. tariffs could hurt the economy," he said. "A policy response may become necessary. We will make an appropriate decision in accordance with changes in developments."

The remarks reinforce dominant market views the BOJ will hold off on raising interest rates from the current 0.5% at its next policy meeting on April 30-May 1.

At the meeting, the BOJ will also release fresh quarterly growth and price forecasts that will offer clues on the bank's monetary policy outlook.

"Ueda's remarks underscore the BOJ's growing concern over Trump-induced risks," said Yusuke Matsuo, senior market economist at Mizuho Securities.

"We maintain our view the BOJ's next rate hike will come either in July or September" with a September move now more likely than July, he said.

In the interview conducted on Monday, Ueda said higher U.S. tariffs are expected to hurt Japanese exports and could affect household sentiment by heightening uncertainty over the economic outlook.

"While stock and exchange-rate developments are hard to predict, we'll carefully monitor how they affect the economy," he was quoted as saying.

On the price outlook, Ueda said domestic food inflation will likely moderate, while real wage growth is expected to turn positive and to keep rising from the middle of this year.

Ueda added there were both upside and downside risks to the price outlook. While persistent food inflation or supply disruptions caused by the U.S. tariffs could push up prices more than expected, the rising cost of living could cool consumption and keep prices from rising further, he was quoted as saying.

The BOJ will look not just at data, but also surveys of companies when compiling the new quarterly forecasts due out on May 1, Ueda told Sankei.

The BOJ last year ended a decade-long massive stimulus programme and it raised interest rates to 0.5% in January on the view Japan was on the cusp of sustainably achieving its 2% inflation target.

While Ueda has signalled the BOJ's readiness to keep raising interest rates, Trump's decision to impose higher U.S. tariffs has complicated the bank's decision on when and how far it could raise still-low interest rates. Most analysts still expect the BOJ's next move to be a hike, not a cut, to its policy rate.

Japan is starting bilateral trade negotiations with the U.S. this week in hope of winning concessions, after it was slapped with steep tariffs that are set to deal a heavy blow to its export-reliant economy.

Ueda is expected to visit Washington next week to attend the annual spring International Monetary Fund meetings, where the impact of Trump's tariffs on the global economy is likely to feature prominently in policymakers' discussions.

(Reporting by Leika Kihara; Editing by Chris Reese, Sandra Maler and Jamie Freed)