Japan's negotiating stance with the US on tariffs has gradually become firmer, potentially emboldened by recent developments in US-China negotiations. 

Some concessions on the Japanese side are highly feasible. A reduction in Japanese tariffs on US imports, expanded purchase quotas, and increased investment in US-based production are all on the table. 

However, Japan is likely to maintain a tough stance on currency, defence, and regulatory standards. There was even a brief hint from the Japanese side about the potential to weaponise Japan’s large holdings of US Treasuries in the negotiations. While this threat is extremely unlikely to be followed through, it is a signal that Japan could hold firm on key issues. 

Even if a framework agreement is finalised before the initial 90-day moratorium concludes in early July, the economic implications will remain uncertain.

The BoJ and Cabinet Office will begin incorporating the parameters of any deal into their forecasts by the end of Q3, but the BoJ will likely treat these with caution. 

In our assessment, the uncertainty in forecasting is likely to postpone the next rate increase until at least January 2026.

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