Insiders: US-Japan trade agreement clears obstacles for Bank of Japan to raise interest rates again.

Sources say that the trade agreement reached between President Trump and Japan has opened up space for the Bank of Japan to raise interest rates again this year. The Bank of Japan may start conveying this prospect by issuing a less pessimistic view on the economic outlook. However, four sources familiar with the Bank of Japan's thinking said that it is difficult to say that a rate hike is imminent, as the timing of the hike depends on whether the economy can withstand the impact of U.S. tariffs. One source said, "With the clouds hanging over U.S. trade policy dissipating, the Bank of Japan may see room for a rate hike this year." A second source said, "Not all trade-related uncertainties have been eliminated," adding that the Bank of Japan must carefully study the data before the end of autumn to find clues on how U.S. tariffs are affecting the economy. The Bank of Japan lowered its economic growth forecast in May and called for a pause in rate hikes, citing among other reasons the uncertain outcome of the Japan-U.S. trade negotiations.