More Than 70% of Japan Firms see Tariff Impact Within Expectations, Reuters Poll Shows

China–U.S. Trade War

Economic

Summary:

The United States has imposed a 10% tariff on goods from most countries along with additional tariffs for many big trading partners including Japan, which could face a 24% tariff from July

President Donald Trump's tariffs within expectations and have not found it necessary to change investment plans, a Reuters survey showed on Thursday.

The United States has imposed a 10% tariff on goods from most countries along with additional tariffs for many big trading partners including Japan, which could face a 24% tariff from July unless it can negotiate a deal.

There is also a 25% tariff on cars, a particular sore point for Japan whose economy relies heavily on automobile exports to the United States.

About 71% of respondents to Reuters' survey said the impact of U.S. tariffs is within initial expectations, and 84% said they plan to stick to their investment plans for the current business year - typically April-March in Japan.

"After all, the Trump administration ends in four years. If we don't carry on with our long-term investments, we'll lose out in competition with other Asian countries," a manager at a machinery manufacturer wrote in the poll.

The survey was conducted by Nikkei Research for Reuters from June 4-13. Nikkei Research reached out to 504 companies and 220 responded on condition of anonymity.

SALES TAX CUT

On Japan's sales tax, four out of 10 respondents said they oppose any tax reduction, whereas the remainder said there should be some form of cut, the survey showed.

Cutting the tax to help the public cope with rising prices has become a major issue ahead of upper house elections scheduled for July.

A 10% tax is applied to most goods and services. The tax for food and newspapers is 8%.

The largest opposition Constitutional Democratic Party of Japan has proposed cutting the 8% rate on food items to zero for one year. Prime Minister Shigeru Ishiba, head of the ruling Liberal Democratic Party, is opposed as sales tax revenue funds social security.

"Opposition parties are oblivious to what the sales tax is for. It is the tax that ought to be raised," said an official at a metal and machinery maker.

With three out of 10 people aged 65 or above, Japan is the world's most advanced ageing society.

A manager at a transportation company favoured a temporary, across-the-board sales tax cut "to fight inflation and stimulate consumption".

About 63% of respondents said the government should not rely on bond issuance to fill revenue shortfall in the event of a sales tax cut, whereas 37% were in favour, the survey showed.

"The ageing of the population will be advancing further and social security costs will be getting bigger. We should not turn to tax cuts or government bond issuance lightly," said a manager at a chemical company.

On the composition of the ruling coalition after the upper house elections, 32% of respondents favoured the current ruling bloc of the LDP and junior partner Komeito, while 20% wanted the Democratic Party for the People to be a third partner, the survey showed.

Last year, the LDP and Komeito lost their combined majority in the more powerful lower chamber, making it difficult for Ishiba to implement policies. The Democratic Party for the People quadrupled its lower house seats.

Source: Reuters

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Central Bank

Economic

Federal Reserve Chair Jerome Powell made a plea on Wednesday for the government not to cut back too aggressively on its efforts to collect data on the economy because the information it collects strongly benefits the entire nation.

“The data we get right now, we can do our jobs. I'm not concerned that we can't do our jobs," Powell said at a press conference following the latest gathering of the central bank's interest-rate setting Federal Open Market Committee. But he suggested that at some point that may no longer be the case.

Powell said he worried that staff cuts and changes in government reports over time will degrade the information the government produces.

"From our standpoint, and I think the standpoint of businesses and governments and everyone: Having really good data on the state of the economy at any given time is a huge public good," Powell said. It does not just help the Fed, "it helps the government, it helps Congress, it helps the executive branch" and it helps private businesses.

Calling the United States a global leader in government-produced economic data, Powell said, "I hate to see us cutting back on that." This data "is a real benefit to the general public" because it ensures people "have the best possible understanding of what's happening in the economy, and hence, what's likely to happen."

Cutbacks have been an area of considerable focus as the Trump administration has targeted huge parts of the government for reductions amid a belief that it will save money. Many outsiders view the costs of these sorts of endeavors as relatively small while paying huge dividends.

Concerns over the issue flared after the Bureau of Labor Statistics earlier this month announced a pullback in the work to collect information for the closely-watched Consumer Price Index. A measure tracking wholesale prices is also to be changed.

Data like the CPI is of particular note because it helps set cost-of-living adjustments for things like Social Security retirement benefits, as well as union contracts. A CPI index based on reduced inputs is one that is less likely to capture what is really going on with price pressures, and that can have big real-world consequences.

Some in the Fed are less happy with the state of data integrity. In a recent interview, soon-to-retire Philadelphia Fed President Patrick Harker said, "We're increasingly flying blind, or at least half blind ... and I'm worried about that."

The numbers that central bankers rely upon to understand the economy are "not good" and they are not improving, Harker said. The issue, he said, goes beyond mere inflation numbers.

Source: Reuters

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Political

Middle East Situation

Financial markets may be in for a "knee-jerk" selloff if the U.S. military attacks Iran, with economists warning that a dramatic rise in oil prices could damage a global economy already strained by President Donald Trump's tariffs.

Oil prices fell nearly 2% on Wednesday as investors weighed the chance of supply disruptions from the Israel-Iran conflict and potential direct U.S. involvement. The price of crude remains up almost 9% since Israel launched attacks against Iran last Friday in a bid to cripple its ability to produce nuclear weapons.

With major U.S. stock indexes trading near record highs despite uncertainty about Trump's trade policy, some investors worry that equities may be particularly vulnerable to sources of additional global uncertainty.

Chuck Carlson, chief executive officer at Horizon Investment Services, said U.S. stocks might initially sell off should Trump order the U.S. military to become more heavily involved in the Israel-Iran conflict, but that a faster escalation might also bring the situation to an end sooner. "I could see the initial knee-jerk would be, 'this is bad'," Carlson said. "I think it will bring things to a head quicker."

Wednesday's dip in crude, along with a modest 0.3% increase in the S&P 500, came after Trump declined to answer reporters' questions about whether the U.S. was planning to strike Iran but said Iran had proposed to come for talks at the White House. Adding to uncertainty, Iranian Supreme Leader Ayatollah Ali Khamenei rejected Trump's demand for unconditional surrender.

U.S. Treasury yields fell as concerns over the war in Iran boosted safe haven demand for the debt.

The U.S. military is also bolstering its presence in the region, Reuters reported, further stirring speculation about U.S. intervention that investors fear could widen the conflict in an area with critical energy resources, supply chains and infrastructure.

With investors viewing the dollar as a safe haven, it has gained around 1% against both the Japanese yen and Swiss franc since last Thursday. On Wednesday, the U.S. currency took a breather, edging fractionally lower against the yen and the franc.

“I don't think personally that we are going to join this war. I think Trump is going to do everything possible to avoid it. But if it can't be avoided, then initially that's going to be negative for the markets,” said Peter Cardillo, Chief Market Economist at Spartan Capital Securities in New York. "Gold would shoot up. Yields would probably come down lower and the dollar would probably rally."

Barclays warned that crude prices could rise to $85 per barrel if Iranian exports are reduced by half, and that prices could rise about $100 in the "worst case" scenario of a wider conflagration. Brent crude was last at about $76.

Citigroup economists warned in a note on Wednesday that materially higher oil prices "would be a negative supply shock for the global economy, lowering growth and boosting inflation—creating further challenges for central banks that are already trying to navigate the risks from tariffs."

Trump taking a "heavier hand" would not be a surprise to the market, mitigating any negative asset price reaction, Carlson said, while adding that he was still not convinced that the U.S. would take a heavier role.

Trades on the Polymarket betting website point to a 63% expectation of "U.S. military action against Iran before July", down from as much as an 82% likelihood on Tuesday, but still above a 35% chance before the conflict began last Friday.

The S&P 500 energy sector index has rallied over 2% in the past four sessions, lifted by a 3.8% gain in Exxon Mobil and 5% rally in Valero Energy. That compares to a 0.7% drop in the S&P 500 over the same period, reflecting investor concerns about the impact of higher oil prices on the economy, and about growing global uncertainty generated by the conflict.

Turmoil in the Middle East comes as investors are already fretting about the effect of Trump's tariffs on the global economy.

The World Bank last week slashed its global growth forecast for 2025 by four-tenths of a percentage point to 2.3%, saying that higher tariffs and heightened uncertainty posed a "significant headwind" for nearly all economies.

Defense stocks, already lifted by Russia's conflict with Ukraine, have made modest gains since Israel launched its attacks. The S&P 500 Aerospace and Defense index hit record highs early last week in the culmination of a rebound of over 30% from losses in the wake of Trump's April 2 "Liberation Day" tariff announcements.

Even after the latest geopolitical uncertainty, the S&P 500 remains just 2% below its February record high close.

"Investors want to be able to look past this, and until we see reasons to believe that this is going to be a much larger regional conflict with the U.S. perhaps getting involved and a high chance of escalating, you're going to see the market want to shrug this off as much as it can,” Osman Ali, global co-head of Quantitative Investment Strategies, said at an investor conference on Wednesday.

Source: Reuters

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Stocks

Central Bank

U.S. stocks drifted to a mixed finish on Wednesday after the Federal Reserve indicated it may cut interest rates twice this year, though it’s far from certain about that.The S&P 500 finished nearly unchanged and edged down by less than 0.1 per cent after flipping between modest gains and losses several times. The Dow Jones Industrial Average dipped 44 points, or 0.1 per cent, and the Nasdaq composite rose 0.1 per cent.

Treasury yields also wavered but ultimately held relatively steady after the Fed released a set of projections showing the median official expects to cut the federal funds rate twice by the end of 2025.

That’s the same number they were projecting three months ago, and it helped calm worries a bit that inflation caused by President Donald Trump’s tariffs could tie the Fed’s hands.Cuts in rates would make mortgages, credit-card payments and other loans cheaper for U.S. households and businesses, which in turn could strengthen the overall economy.

But they could likewise fan inflation higher.So far, inflation has remained relatively tame, and it’s near the Fed’s target of 2 per cent. But economists have been warning it may take months to feel the effects of tariffs. And inflation has been feeling upward pressure recently from a spurt in oil prices because of Israel’s fighting with Iran.

Fed Chair Jerome Powell stressed on Wednesday that all the uncertainty surrounding tariffs means the median forecast for two cuts to interest rates this year could end up being far from reality. “Right now it’s just a forecast in a very foggy time,” he said Fed officials are waiting to see how big Trump’s tariffs will ultimately be, what they will affect and whether they will drive a one-time increase to inflation or something more dangerous.

There is also still deep uncertainty about how much tariffs will grind down on the economy’s growth. “Because the economy is still solid, we can take the time to actually see what’s going to happen,” Powell said.“We’ll make smarter and better decisions if we just wait a couple months or however long it takes to get a sense of really what is going to be the passthrough of inflation and what are going to be the effects on spending and hiring and all those things.”Adding to the uncertainty Wednesday were continued swings for oil prices.

After topping US$74 during the morning, the price for a barrel of benchmark U.S. oil dropped below US$72 before settling at US$75.14, up 0.4 per cent from the day before. Brent crude, the international standard, rose 0.3 per cent to US$76.70.

Oil prices have been yo-yoing for days because of rising and ebbing fears that the conflict between Israel and Iran could disrupt the global flow of crude. Not only is Iran a major producer of oil, it also sits on the narrow Strait of Hormuz, through which much of the world’s crude passes.

Trump said on Wednesday that Iran has reached out to him and that it’s not “too late” for Iran to give up its nuclear program, though he also declined to say whether the U.S. military would strike the country.“I may do it. I may not do it,” he said. “I mean, nobody knows what I’m going to do.”

On Wall Street, Nucor rose 3.3 per cent after the steelmaker said it expects to report growth in profit for all three of its operating groups in the second quarter. It said it benefited from higher selling prices at its sheet and plate mills, among other things.

All told, the S&P 500 fell 1.85 points to 5,980.87. The Dow Jones Industrial Average dipped 44.14 to 42,171.66, and the Nasdaq composite added 25.18 to 19,546.27.In the bond market,

Treasury yields held relatively steady following a few wavers up and down.The yield on the 10-year Treasury edged down to 4.38 per cent from 4.39 per cent late Tuesday.

The two-year Treasury yield, which more closely tracks expectations for what the Fed will do with its overnight interest rate, held at 3.94 per cent.
The moves followed a mixed set of reports on the U.S. economy released earlier in the day. One said fewer workers applied for unemployment benefits last week, which could be an indication of fewer layoffs.

But a second report said that homebuilders broke ground on fewer homes last month than economists expected. That could be a sign that higher mortgage rates are chilling the industry.In stock markets abroad, indexes were mixed across Europe and Asia.Tokyo’s Nikkei 225 rose 0.9 per cent, and Hong Kong’s Hang Seng fell 1.1 per cent for two of the bigger moves.

Source: AP

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Cryptocurrency

The Federal Reserve left its key interest rate steady on June 18, choosing caution as it monitors persistent inflation and global uncertainties.

Bitcoin (BTC) remained largely stable, continuing to hold recent gains despite broader market jitters. The flagship crypto was trading at $104,110 as of press time, down 0.66% over the past 24 hours.

Rates maintained

The central bank’s Federal Open Market Committee announced it would maintain its policy rate within the current 4.25% to 4.5% target range, matching market expectations.

Policymakers emphasized that any future rate changes would depend on incoming economic data, citing healthy job growth and moderate progress on inflation as reasons to pause.

The total value of digital assets globally edged up to $3.23 trillion, reflecting cautious optimism among crypto traders who have kept a close watch on U.S. monetary policy.

Financial markets widely anticipated the Fed’s decision, especially with recent oil price increases adding new risks to inflation forecasts. Tensions in the Middle East, particularly between Israel and Iran, have also contributed to a more cautious economic outlook.

A survey from CME Group showed traders were almost certain, with a 99.9% probability, that the Fed would hold rates steady, despite repeated calls from the White House to push for a rate cut.

Trump calls for cuts

President Donald Trump intensified criticism of Fed Chair Jerome Powell on June 18, accusing him of damaging economic momentum by keeping borrowing costs too high.

Trump claimed that lowering rates by two percentage points would spur investment and support markets, contrasting U.S. policy with recent rate cuts by European central banks.

Even so, the Fed has signaled it intends to stay the course in its effort to bring inflation back in line with its 2% target, resisting political pressure amid a complex economic backdrop.

Bitcoin’s steady performance highlights how some investors continue to treat the token as a potential buffer against traditional market and policy shifts. However, geopolitical flashpoints and volatile commodity prices could test the crypto market’s relative calm in the months ahead.

Source: Cryptoslate

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Political

Middle East Situation

President Donald Trump said Iran squandered the chance to make a deal over its nuclear enrichment, but declined to say whether the US plans to join Israel’s offensive aimed at destroying the program.

“I may do it. I may not do it,” Trump told reporters Wednesday at the White House when asked if he is moving closer to bombing Iran. “I mean, nobody knows what I’m going to do.”

Iran had been in negotiations with the US over its nuclear program for weeks, and had a further meeting scheduled, when Israel attacked Friday. The two Mideast nations have since traded missile strikes and escalating rhetoric — Israeli leaders threatening to topple the Islamic Republic, and their Iranian counterparts vowing defiance and retaliation — while the Trump administration weighs how deeply to get involved in its ally’s war.

Trump’s ambiguous comments add a new layer of tension to the deepening Israel-Iran clash. The president, who has campaigned for a decade in opposition to American wars in the Middle East, also faces a tense divide among his supporters over whether the US should enter the fray. America has so far limited its participation to helping Israel defend itself against Iranian missile and drone launches.

Trump said he encouraged Benjamin Netanyahu in a call Tuesday to “keep going” with his offensive operations, adding that he gave the Israeli premier no indication that US forces would participate in the attacks.

But the US is seen as being able to provide military firepower necessary to destroy Iran’s underground enrichment facility at Fordow, which analysts say Israel is unable to do alone. Iran has warned it can hit American bases across the region, where tens of thousands of troops are stationed, if the US joins the Israeli attack.

Trump didn’t close the door to a resumption of nuclear talks — he said Iran had sought a meeting, a claim Tehran disputed — but downplayed the likelihood they would bear fruit. “I said it’s very late to be talking,” the president said. “There’s a big difference between now and a week ago.”

The comments were Trump’s first substantive remarks since meeting Tuesday with his National Security Council, where the US’s options were discussed. He spoke to reporters on the South Lawn of the White House, where workers were installing a giant flagpole outside the executive mansion’s diplomatic entrance. Hours earlier he’d demanded “UNCONDITIONAL SURRENDER” from Iran in a social media post.

Since Israel’s strikes started, Iran has fired 400 ballistic missiles and hundreds of drones at Israel, killing 24 people and injuring more than 800, according to the Israeli government. At least 224 Iranians have been killed by Israel’s attacks. Iran has hit targets including a key oil refinery in the port of Haifa that was forced to shut down.

“The Americans should know that the Iranian nation is not one to surrender,” Iran’s Supreme Leader Ayatollah Ali Khamenei said in a statement published on his official website Wednesday. “Any military incursion by the United States will undoubtedly result in irreparable damage.”

Out of Patience

“Good luck,” Trump said when asked for his response. “We cannot let Iran get a nuclear weapon. I’ve been saying it for a long time. I mean it more now than I ever mentioned.”

Dennis Ross, who served as President Bill Clinton’s Middle East envoy and just returned from a trip to the region, said the Iranian regime is likely looking for an off-ramp from the current conflict despite the bellicose comments from Khamenei.

Its top priority is survival, followed by avoiding a direct conflict with the US, said Ross, who’s now a fellow at the Washington Institute for Near East Policy. “When they feel profoundly threatened, they will make concessions. They certainly feel vulnerable and threatened right now.”

Iran’s missile and drone launches against Israel appeared to be subsiding Wednesday evening, although the reason wasn’t immediately clear. While the Israeli army earlier said it had destroyed around one-third of Iran’s missile launchers, Tehran still possesses thousands of ballistic missiles that can reach Israel, National Security Adviser Tzachi Hanegbi said Monday.

US Ambassador to Israel Mike Huckabee announced Wednesday that the embassy is organizing evacuations of Americans in Israel who want to leave. Embassy personnel have already begun to depart the country, a spokesperson said. The announcements came a day after the US embassy in Jerusalem said it would be closed Wednesday through Friday.

Trump said the Iranian government had contacted the US about the conflict and even proposed a White House meeting to settle the matter, yet he said his patience with the Islamic Republic had “already run out.” Iran’s mission to the United Nations denied that claim in an X post Wednesday, saying “No Iranian official has ever asked to grovel at the gates of the White House.”

The question of whether to strike Iran has the potential to cause domestic political headaches for Trump, whose base is split between isolationists and traditional conservative interventionists. Supporters of both political parties oppose the US joining Israel’s attack on Iran by clear majorities, a YouGov survey found.

Trump said his bottom line remains that “Iran cannot have a nuclear weapon” and “it’s not a question of anything else.” During his first term, Trump withdrew from an agreement aimed at curtailing Iran’s atomic program, which the US and other world powers had spent years negotiating.

Republican hawks have been supportive of military action against Iran, but Trump has faced pressure from some of his isolationist supporters to take a more measured approach. “We have all been very vocal for days now urging, ‘Let’s be America First. Let’s stay out,” Representative Marjorie Taylor Greene said Tuesday on CNN.

During a breakfast Wednesday hosted by the Christian Science Monitor, longtime Trump ally Steve Bannon said Trump’s supporters want him to focus on issues most important to his base, like cracking down on immigration. But Bannon said that if the president has more information that backs the case for intervention “and makes that case to the American people, the MAGA movement will support President Trump.”

Defense Secretary Pete Hegseth, appearing before the Senate Armed Services Committee on Wednesday, declined to answer directly whether Trump had asked the Pentagon to provide options for striking Iran.

Hegseth said that “maximum force protection at all times is being maintained” for US troops stationed in the region, and said that “the president has options and is informed of what those options might be, and what the ramifications of those options might be.”

The US has continued building its military presence in the region. The USS Ford carrier strike group is set to depart next week on a regularly scheduled deployment, initially in the European theater, according to a US official.

Meanwhile, the head of the International Atomic Energy Agency said the location of Iran’s near-bomb-grade stockpile of enriched uranium cannot currently be verified.

IAEA Director General Rafael Mariano Grossi said Wednesday the whereabouts of the material are now unclear, given Tehran warned him the stockpile could be moved in the event of an Israeli attack. The agency continues to see no indication of significant damage to Iran’s Fordow nuclear site, he added.

Source: Bloomberg

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Central Bank

Economic

The Federal Reserve's latest "dot plot" outlining future interest rate moves suggests the central bank will still cut rates twice this year, unchanged from its March outlook, though June's forecast shows a more divided Fed weighing its next move on interest rates.

The Fed announced Wednesday that it held its benchmark interest rate in a range of 4.25%-4.5%, as expected. This marked the fourth straight meeting the Fed kept rates unchanged since cutting rates by 0.25% back in December.

Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future.

The central bank raised its projections for inflation and unemployment at the end of this year while lowering its forecast for economic growth.

Fed officials see the fed funds rate falling to 3.9% this year, on par with its previous March projection. Coming into the decision, markets had priced in one to two additional rate cuts this year, according to Bloomberg data. The central bank slashed interest rates by a total of 100 basis points in 2024. It has yet to deliver rate cuts so far this year.

In 2026, officials see one additional cut; in March, the Fed expected to cut rates twice next year.

Twelve officials predict a rate cut this year, with two officials seeing a decrease of more than 0.5%.

Most notable in Wednesday's dot plot were forecasts that showed seven FOMC members see no change in rates this year, signaling a more hawkish stance compared to March when four officials saw no change. Two FOMC members expect only one interest rate cut this year.

The updated forecasts suggest the Federal Reserve will continue to take a cautious approach as officials attempt to understand the Trump administration's shifting trade narrativeand other policy unknowns, such as the implications of the president's tax proposal.

Meanwhile, fears over stagflation, a bleak economic scenario in which growth stalls, inflation persists, and unemployment rises, have escalated since the start of the year — and Wednesday's projections continued to underscore that sentiment.

The SEP indicated the Federal Reserve sees core inflation hitting 3.1% this year, higher than March's projection of 2.8%, before cooling to 2.4% in 2026 and 2.1% in 2027.

The Fed also sees the unemployment rate rising to 4.5% this year, higher than its previous forecast of 4.4%. As of May, the unemployment rate stood at 4.2%. Unemployment is expected to remain at that level — 4.5% — through 2026 before ticking down to 4.4% in 2027.

The Fed also downgraded its previous forecast for US economic growth, with GDP expected to grow at an annualized pace of 1.4% this year before reaching 1.6% growth in 2026 and 1.8% in 2027.

In March, officials saw GDP growth at 1.7% this year before reaching 1.8% in 2026 and 2027.

Source: Yahoo Finance

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