Trump Tariffs Likely Halt BOJ Rate Hikes as Japan Faces Economic Repercussions

Economic

Summary:

Former Bank of Japan (BOJ) policymaker Takako Masai warns that U.S. tariffs under President Trump could derail Japan’s monetary tightening path...

US Tariffs Trigger Global Shockwaves, Threatening Japan’s Fragile Recovery

The resurgence of U.S. protectionist policies, especially automobile tariffs, has injected new uncertainty into global trade, with Japan expected to bear a disproportionate burden. According to former BOJ policymaker Takako Masai, these tariffs are likely to depress Japanese exports and industrial output, weakening both wage growth and consumer spending. This would delay the BOJ's already cautious normalization of interest rates.

Masai predicts that the real economic impact will manifest by 2026, as the lagged effects of trade disruption ripple through the supply chain and external demand. Notably, Japan's auto industry—an anchor of its export economy—is directly in the crosshairs of the new tariffs, magnifying the potential hit to GDP.

Monetary Policy Path Reverses as External Conditions Deteriorate

Earlier optimism over Japan achieving stable 2% inflation led BOJ Governor Kazuo Ueda to begin exiting ultra-loose policy, with the first rate hike to 0.5% in January 2025. However, the current trade turbulence appears to be altering the monetary policy trajectory. While core inflation has remained above target for over three years, much of it stems from supply-side pressures like energy and commodity costs, not from robust domestic demand.

Masai emphasizes that in such an environment, further rate hikes could be premature. She advocates for low real interest rates to help bolster domestic restructuring, including diversification of exports and stimulating internal consumption. This reflects a strategic shift in Japan’s economic playbook—adapting to deglobalization trends and reducing external vulnerabilities.

Delays in BOJ Hikes Reflect Structural Trade Dependence

Market consensus already points to a delay in further BOJ action. A recent Reuters poll indicates that most analysts foresee the next rate hike not until early 2026, reinforcing Masai’s assertion that the rate hike cycle may have peaked.

The BOJ’s decision to downgrade growth projections on May 1 amid trade concerns underscores this outlook. Even though inflation exceeds 2%, the composition of that inflation matters. If it’s not driven by wage-push or demand-pull forces, the risk of stagflation rises. Hence, hiking rates in the face of weakening demand may do more harm than good.

Policy Flexibility Over Dogma

Masai’s comments also signal the BOJ’s willingness to re-expand its balance sheet if necessary—a return to quantitative easing should the economy take a sharper downturn. This reaffirms Japan’s adaptive, rather than doctrinaire, monetary approach. Under Ueda, while the goal remains to anchor inflation expectations and normalize policy, global shocks may demand pragmatic backpedaling.

Japan’s economic restructuring—long dependent on exports and a weak yen—is now challenged by trade fragmentation. Tariff uncertainty makes that dependence risky. Unless Japan accelerates domestic consumption, digital productivity, and demographic reforms, it risks prolonged stagnation under persistent external constraints.

Navigating an Era of Weaponized Trade

The intersection of global trade politics and domestic monetary policy is once again in focus. Japan, caught in the crossfire of U.S. tariff strategy, finds itself needing to balance inflation control with growth stabilization. The BOJ, aware of these vulnerabilities, appears set to maintain policy flexibility rather than push ahead with hikes that may aggravate downturn risks.

In the broader context, Japan’s experience underscores a key insight: in an era of trade weaponization, central banks must not only fight inflation but shield economies from external geopolitical tremors. Whether the BOJ will act decisively or remain in wait-and-see mode depends heavily on how aggressively U.S. trade policy continues to evolve.

Source: Reuters

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Gerik

Economic

The Expanding “Silver Economy” and Its Double-Edged Nature

The aging population is rapidly redefining the structure of economies and social welfare systems. In China, the so-called “silver economy” — encompassing services and industries tailored for the elderly — reached 7 trillion yuan in 2024, about 6% of GDP. The government has responded with a 26-point development plan, focusing on senior-oriented industrial parks, smart healthcare, and retirement financial planning.

While these efforts create promising pathways for innovation and job creation (potentially 100 million jobs by 2050), analysts caution that they are only part of the solution. Rapid aging without synchronized government intervention can worsen fiscal stress and exacerbate economic slowdowns, particularly in emerging markets.

Global Echoes: Aging Stress from Africa to South Asia

Aging is no longer confined to high-income economies. In the past week, countries across Asia and Africa — including Morocco, India, and Iran — have flagged aging as a major policy concern. Morocco anticipates its over-60 population to double by 2050, with lower fertility rates creating a labor shortage and placing enormous strain on social welfare systems.

In Iran, nearly one-third of the population will be elderly in 25 years. Stark income disparities are already evident, with 62% of elderly women and 39% of elderly men living below the absolute poverty line. This is pushing the national pension and public healthcare systems to a breaking point.

India, the world’s fifth-largest economy, is racing against time. By 2050, the elderly population is projected to reach 350 million. However, only 29% currently receive pensions, and the country has a glaring shortage of geriatric healthcare capacity—with only 270 specialists serving more than 140 million older adults.

These examples reveal a common pattern: most developing nations are aging before they can fully industrialize or establish robust safety nets, making them vulnerable to productivity stagnation and deepening social inequalities.

South Korea: A Warning from a “Super-Aged” Society

Perhaps no country offers a clearer cautionary tale than South Korea, which officially entered the “super-aged” society stage in late 2024, with over 20% of the population aged above 65. Recent data show that for the first time, hospitalizations due to age-related cataracts outnumbered births—marking a demographic inflection point.

The economic effects are profound. Remote villages are becoming ghost towns. Local populations are shrinking, and the elderly face growing isolation. One resident of a now-quiet town lamented: “In a few years, even this cultural center will be empty. No children, no future.”

South Korea’s central bank has quantified the risks: a 1% increase in the old-age dependency ratio could reduce banks’ capital adequacy (BIS) ratio by 0.64 percentage points and weaken their risk-absorbing capacity (Z-score) by nearly 2 points.

Moreover, aging reduces consumption and investment in innovation. Elderly individuals tend to save more and spend less, dampening domestic demand. The Bank of Korea projects potential GDP growth could fall to as low as 0.5–1.2% by 2040—an alarmingly low level for a developed economy.

Structural Reforms as an Economic Imperative

Countries like Japan, Sweden, and South Korea have pioneered various reforms to cope with aging, including robot-assisted elderly care, workplace inclusion for older adults, and increased fertility incentives. But the consensus among experts is clear: without aggressive structural changes—including enhancing labor productivity, boosting retirement savings, and incentivizing elderly workforce participation—many emerging economies risk entering a "demographic trap."

South Korea’s government, for instance, is expanding welfare programs and childcare subsidies, but economists such as Kang Min Joo from ING caution that this will remain a formidable challenge for any future administration.

Aging as a Global Economic Reckoning

The rise of the aging population is no longer a looming concern; it is a present and intensifying economic phenomenon. From demographic shifts to pension pressures, from consumption slowdowns to productivity losses, the effects are being felt across every sector.

Without urgent, coordinated policy action, especially in developing economies, aging will not only reshape societal structures but also erode the foundation of long-term growth. The future lies in a balanced approach—embracing the economic opportunities of the silver economy while fortifying institutional resilience against its fiscal and labor market strains.

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James Whitman

Economic

Britain’s goods exports to the US fell in April by the largest amount for any month since records began in 1997 after President Donald Trump launched his global trade war.

Goods shipments to the US including precious metals fell by £2 billion ($2.7 billion) from March, which the Office for National Statistics said was “likely linked to the implementation of tariffs on goods imported to the United States.” It left sales to the US at £4.1 billion, the lowest since February 2022.

Trump hit the UK with 10% tariffs on all goods on his April 2 “Liberation Day.” Imports of steel and aluminium, and cars and car parts were subject to a higher 25% tariff.

There were decreases in exports of most commodities to the US in April, the ONS said. Exports of machinery and transport equipment decreased by £800 million because of a drop in car shipments. Chemical exports fell by £300 million. Imports from the US slid by £400 million to £4.7 billion.

The UK struck a deal with the US on May 8 lowering car tariffs and removing them on aluminium and steel but the new regime has yet to be put in place.

The total goods and services trade deficit with the rest of the world widened by £4.9 billion to £11.5 billion in the three months to April 2025.

ONS Director of Economic Statistics Liz McKeown said: “After increasing for each of the four preceding months, April saw the largest monthly fall on record in goods exports to the United States with decreases seen across most types of goods, following the recent introduction of tariffs.”

Source: Bloomberg

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Gerik

Economic

The Return of Thaksin and the Fragile Legitimacy of the Pheu Thai Government

The re-emergence of Thaksin Shinawatra on Thai soil after 15 years of exile has re-ignited a political fault line. Although his return in 2023 was framed as a form of reconciliation, his subsequent sentencing and hospital-based detention have stirred accusations of privilege and legal manipulation. Now, the Thai Supreme Court's fresh review of Thaksin’s sentence could rule the hospital detention illegal, forcing his incarceration and intensifying public scrutiny over how the Pheu Thai government has handled the matter.

The political impact is especially potent for Prime Minister Paetongtarn Shinawatra—Thaksin’s daughter—whose party’s credibility hinges on perceptions of fairness and legality. Her close familial and political ties to Thaksin have become both a source of strength and a potential liability. A recent poll shows 60% of respondents believe Thaksin’s case could disrupt the stability of her government, especially after the suspension of the Pheu Thai-led cash handout program.

Eroding Public Trust and Governance Fatigue

Observers such as Rangsit University’s Wanwichit Boonprong suggest Thailand is enduring a "crisis of confidence" in its leadership, driven by an inability to manage concurrent emergencies. These include economic stagnation, wavering stimulus policies, and intensifying border disputes. Former allies like Jatuporn Prompan argue that the government’s failure to assert authority, especially during moments of heightened nationalism and security concerns, marks a decline in executive strength.

Thaksin’s unofficial yet visible role in foreign engagements, campaign appearances, and policy influence only deepens public skepticism about who truly governs Thailand. Political analyst Yuttaporn Issarachai warns that any adverse court ruling against Thaksin could severely undermine the moral authority of the current administration.

Border Tensions with Cambodia: A Second Front of Crisis

Simultaneously, unresolved territorial disputes with Cambodia are escalating, with both nations reinforcing military presence in contested border zones. This has become a rallying point for nationalist critics and a litmus test for Prime Minister Paetongtarn’s diplomatic resolve.

Although direct talks with Cambodian officials are scheduled, experts like Titipol Phakdeewanich from Ubon Ratchathani University doubt any breakthrough will emerge. He criticizes the prime minister for failing to deliver strong, clear messaging amid rising public anxiety about national sovereignty.

The stakes are high: the dispute is not only about land but about the perception of Thailand’s geopolitical competence. Failure to control the narrative could allow opposition forces to frame the Pheu Thai administration as weak on national security, compounding its struggles with legitimacy.

An Inflection Point for Thai Politics

Thailand’s current situation illustrates a dangerous confluence of legal, economic, and geopolitical crises. While each could be managed in isolation, their simultaneity magnifies the pressure on the Pheu Thai-led government. Prime Minister Paetongtarn’s challenge is not only to defend her father and her party, but to convince the public and her coalition allies that she can independently lead amid unprecedented stress.

If she cannot regain control over the legal narrative surrounding Thaksin or assert Thailand’s stance in the Cambodia dispute, the coming weeks may mark a turning point for her administration—and perhaps for the future of the Shinawatra political dynasty.

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Pepperstone

Forex

Economic

On an MoM basis, the economy shrunk by a larger than expected 0.3% in April, the first such monthly contraction since October of last year, and the largest such fall in 18 months. In turn, this saw the rolling 3-month pace of growth remain at 0.7%, almost entirely underpinned by a strong pace of expansion in Feb & Mar.

April 2025 UK GDP: The Start of A Soft Q2_1

This economic contraction, though, shouldn't come as a particular surprise, albeit the usual caveats around the volatile and somewhat unreliable nature of the monthly GDP series must continue to apply. Said contraction comes largely as a result of payback from a surprisingly strong Q1, as the positive impacts of tariff front-running, as well as the pull forward of 'big ticket' purchases ahead of the various April tax changes are unwound.

That said, the figures do represent a soft start to what is likely to be a soft quarter overall, with leading indicators such as the latest PMI surveys pointing to the economy, at best, flat-lining in the Apr-Jun period. Clearly, numerous downside risks remain, not only in the form of elevated global trade uncertainty, but also as the full impact of the recent National Insurance increase is felt, and as another round of tax hikes likely lie in wait in this autumn's Budget.

The Bank of England, however, are near-certain to hold Bank Rate steady at 4.25% next Thursday, holding off on further easing until the August MPC meeting, amid continued concern over potentially persistent price pressures. The temporary nature of the summer 'hump' in inflation, coupled with rapid labour market loosening, and numerous downside growth risks, is though likely to lead to the MPC delivering a considerably faster pace of easing once summer is out, potentially even necessitating cuts in larger clip sizes too. The 'gradual and careful' policy guidance continues to put the MPC far behind the curve, and seems on borrowed time.

Source: Pepperstone

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Gerik

Economic

Forex

Rethinking Dollar Dominance in Asia

The longstanding supremacy of the U.S. dollar in global finance is being re-evaluated across Asia. While de-dollarization is not a new concept, recent geopolitical and economic shifts—especially under the Trump administration’s assertive trade policies—have reshaped the urgency and execution of this trend.

The Association of Southeast Asian Nations (ASEAN) recently laid out a strategic plan for 2026–2030 aimed at encouraging trade settlements in local currencies and enhancing regional payment systems. This reflects not just a policy decision, but a structural recalibration in response to rising exchange rate volatility and diminishing confidence in the greenback's stability as a neutral medium.

Catalysts for Change: Policy Volatility and Financial Weaponization

The core driver behind de-dollarization is strategic risk mitigation. As Mitul Kotecha from Barclays notes, the dollar has been increasingly used as a “weapon” through sanctions and trade leverage. This realization has pushed governments and investors in Asia to reassess dollar-heavy portfolios and prepare for alternative reserve and transactional systems.

This is particularly relevant in the context of the dollar's 8% depreciation this year and the broader decline in its share of global reserves—from over 70% in 2000 to 57.8% in 2024. Though cyclical factors contribute to this weakening, the trend signals longer-term doubts about the dollar’s reliability amid U.S. policy unpredictability.

ASEAN and Beyond: Conversion and Hedging Behavior

According to Bank of America, the de-dollarization movement in ASEAN is gaining traction through two channels: the conversion of dollar-denominated deposits back to local currencies, and increased hedging of dollar exposure by institutional investors. Countries such as Singapore, South Korea, Taiwan, and Japan are leading this charge due to their high levels of foreign asset holdings.

FX hedging—particularly among life insurers, pension funds, and hedge funds—is playing a pivotal role. For instance, Japanese life insurers’ hedge ratio has risen from 44% to 48% in recent months, while Taiwan's stands around 70%. These shifts indicate a strategic pivot to protect against dollar fluctuations while boosting local currency liquidity.

China and BRICS: Building Alternative Systems

China is spearheading broader de-dollarization efforts beyond ASEAN by pushing for yuan-based bilateral trade and creating alternatives to the SWIFT system through BRICS cooperation. These moves aim to establish a multipolar financial order, one less dominated by U.S. oversight or influence.

However, while bilateral trade in local currencies is expanding, replacing the U.S. dollar’s deep integration into financial infrastructure remains a long-term challenge. Unlike the yuan, the dollar benefits from unparalleled liquidity, vast bond markets, and global trust built over decades.

Structural vs. Cyclical De-Dollarization

Despite growing momentum, analysts caution that the current de-dollarization wave may still be cyclical. Cedric Chehab from BMI emphasizes that a true structural shift would require either sustained and aggressive sanctions by the U.S. or domestic policy changes mandating reserve reallocation toward local assets.

Moreover, the decline in dollar usage is mostly affecting reserves and not yet strongly disrupting its role in trade invoicing—over 50% of global trade still uses the U.S. dollar. Thus, while central banks may diversify, the dollar remains foundational for international commerce.

Gold as the Quiet Beneficiary

Amid the gradual retreat from dollar reserves, one consistent winner has emerged: gold. As central banks reduce dollar holdings, many are reallocating to gold due to its historical role as a hedge against currency and political risks. This aligns with forecasts suggesting gold’s reserve share will rise further as financial systems diversify.

Asia’s shift away from the dollar reflects deeper geopolitical and monetary realignments rather than just cyclical market behavior. While the dollar remains king in terms of liquidity and trust, its share in reserves and investments is slowly eroding due to strategic recalculations by Asian economies.

Still, dethroning the greenback requires more than dissatisfaction—it demands credible alternatives, deeper capital markets in local currencies, and consistent macroeconomic policy frameworks. Until then, what the world is witnessing is not a dollar collapse, but the early chapters of a multipolar currency era.

Source: CNBC

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Gerik

Economic

The High Stakes of AI Autonomy

The race to dominate artificial intelligence is increasingly framed by geopolitical competition—particularly between the U.S. and China. With Washington intensifying export controls on AI-critical semiconductors, China has responded with a policy-driven surge in domestic innovation. However, creating a self-reliant AI chip supply chain remains a complex and uneven journey.

Export restrictions imposed by the U.S. not only prevent Chinese companies from acquiring Nvidia’s top-tier AI chips but also block access to the very tools and know-how needed to manufacture competitive alternatives. In effect, China is simultaneously pushed toward innovation and denied the infrastructure to scale it—especially in areas such as lithography and high-efficiency fabrication.

Chip Design: Huawei Leads the Domestic Charge

China’s strongest advances are visible in the design phase. While Nvidia remains the global benchmark, Chinese firms—particularly Huawei’s HiSilicon—are closing the gap. Huawei’s Ascend 910B and the anticipated 910C show performance improvements, reducing the lag from two years to just one generation behind Nvidia’s H20.

This progress suggests that China’s GPU design capabilities are maturing, aided by government subsidies and a surge in AI chip startups like Enflame and Biren Technology. But even with design breakthroughs, the real challenge lies downstream in fabrication and yield efficiency.

Fabrication: SMIC’s Technological Ceiling

Manufacturing remains China’s weak link. SMIC, the country’s most advanced chip foundry, is limited to 7nm processes—far behind Taiwan’s TSMC, which has moved into mass production at 3nm. Although SMIC was linked to a 5nm 5G chip for Huawei’s Mate 60 Pro, the achievement likely relied on workaround methods that aren't scalable.

The broader issue lies in the absence of cutting-edge fabrication tools. U.S. blacklists prevent TSMC and other advanced foundries from serving Chinese firms. Consequently, China must rely on SMIC’s less efficient production capacity, which struggles to produce high-performance GPUs at commercial yield rates.

Advanced Equipment: The ASML Bottleneck

The heart of China’s fabrication dilemma lies with lithography. The Netherlands’ ASML dominates the market for extreme ultraviolet (EUV) machines required for 3nm and smaller nodes. Due to U.S.-aligned restrictions, China is cut off from acquiring these machines.

Although Chinese firms like SiCarrier Technologies are attempting to develop domestic alternatives, progress is slow and uncertain. Deep ultraviolet (DUV) systems provide temporary relief, allowing SMIC to manufacture at 7nm, but yields are poor and likely unsustainable for meeting large-scale AI demand.

Rather than imitate EUV tech, Chinese strategists may pivot toward novel lithography technologies in an effort to leapfrog existing barriers—a high-risk, long-horizon approach.

Memory Chips: Momentum Amid Limitations

In contrast, China’s performance in memory production is comparatively stronger. High-bandwidth memory (HBM) is crucial for AI workloads, and while global leaders like SK Hynix, Samsung, and Micron dominate the market, China’s ChangXin Memory Technologies (CXMT) is beginning to fill the void.

CXMT, in collaboration with Tongfu Microelectronics, is reportedly developing early-stage HBM capabilities. While still nascent, this signals strategic alignment with the AI chip value chain. Nonetheless, South Korea's alignment with U.S. restrictions since late 2024 has made it harder for China to source world-class HBM chips, increasing the urgency for domestic innovation.

Parallel Progress and Bottlenecks

China’s AI chip ecosystem is evolving under pressure—driven by necessity and backed by massive state investment. Notably, advances in GPU design and memory suggest that targeted gains are achievable even under export curbs. Yet the inability to access EUV lithography and advanced fabrication tools leaves China structurally handicapped.

The broader implication is that China’s AI ambitions remain dependent on breakthroughs in manufacturing capacity. Until then, the ecosystem will rely on strategic workarounds, lower-yield production, and design improvements. While Beijing’s long-term play may yield autonomy, the current trajectory reveals a system under construction—progressing, but not yet competitive on a global scale.

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