Tariff Tensions Expected to Continue in 2025 Amid Post-COVID Financial Strain
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With rising tensions and the financial repercussions of the post-COVID era, the year 2025 is expected to resemble previous years filled with interest rate volatility. In particular, developments in U.S. political and economic affairs—especially concerning tariffs—will continue to be influential. These days, the Federal Reserve no longer holds the absolute leadership that other central banks once looked up to. Since 1988, Trump has had a tariff-centric perspective.
After a Japanese company failed to acquire a U.S. company, Trump appeared on television criticizing imports from Japan, Germany, Saudi Arabia, and South Korea. He said, "We must protect our nation from such countries. We must impose tariffs." This background shows that Trump truly believes in tariffs as a tool of pressure and negotiation tactics.
He tends to favor the devaluation of the dollar and seeks to reduce its value to boost U.S. exports. In fact, the depreciation of the dollar has been significant. Even systematically, the market is sometimes deliberately pushed to fall to pressure the Federal Reserve for a rate cut.
Interest Rate Volatility Reflects Complex Global Economic Dynamics
Interest rates are not only influenced by macroeconomic scenarios such as inflation or recession, but also by how each currency behaves in the market. By combining historical patterns and real-world data, we can better estimate how rates may change. Under conditions similar to the 2000s, central banks tend to raise interest rates to control prices. However, in stagflation—where both inflation and low growth exist—central banks face greater challenges. Similar patterns were evident in the 1970s.
In such circumstances, central banks are forced to choose between protecting the economy or controlling prices, which can lead to uncertainty and higher rates. This is particularly true for currencies like the Australian and New Zealand dollars, which are subject to significant external pressure. At the same time, currencies considered more defensive—such as the U.S. dollar, Japanese yen, Swiss franc, and euro—serve as safe havens during global disruptions.
Modeling tools now provide clearer images of how these currencies might behave during such periods. Rather than being based solely on economic structure, modern approaches incorporate the behavior of foreign exchange markets. These models offer more accurate and realistic predictions of global monetary policy outcomes. For instance, a soft landing (low inflation and steady growth) would create one scenario, while a hard landing (recession and deflation) would create another.
In conclusion, even with external pressure—such as Trump’s tariff threats and escalating trade tensions—the lack of confidence in U.S. policies could push investors toward alternative assets like gold or the Japanese yen.
Japan's Economic Struggles and Wage Dynamics in 2025: A Nation at the Crossroads
Japan has been grappling with a mix of stagnation and deflation for decades. This year, too, is filled with challenges and new objectives. While wage increases remain at elevated levels, which could influence shifts in monetary policy, Japan's central bank has so far maintained its stance. If this trend continues, the likelihood of interest rate hikes in Japan may rise—though that doesn't necessarily mean it will significantly impact Japanese consumers.
Although monthly wages and base salaries in Japan have grown compared to the past, price hikes have occurred concurrently, thereby neutralizing much of the gain. Japan still faces a gap between nominal and real wage increases. This is evident in the shrinking purchasing power of workers who are already dealing with rising living costs. For now, real income remains limited for many workers, especially among part-time and contract employees.
Despite efforts by the Japanese government and companies to improve working conditions and wage transparency, tangible benefits remain restricted. Japan still lags behind other developed economies in terms of wage growth. Meanwhile, countries like the U.S. and Canada have seen more substantial real wage increases in recent years—partly due to their stronger economic growth and more responsive monetary policies.
If Japan continues to experience only modest wage gains while facing inflationary pressures, there may be growing calls for structural reforms. These would aim to ensure a fairer distribution of income and provide greater support to vulnerable social groups. Without these reforms, it could become increasingly difficult to maintain a stable and sustainable growth path for the aging Japanese population.
This context casts doubt on whether the Bank of Japan will continue raising interest rates in 2025. The central bank is likely to proceed with caution, especially given the heightened tensions and economic uncertainty globally. As the tension between countries remains high, Japan’s economic future remains delicately balanced.
UK and Eurozone Interest Rate Outlook: Global Policy Turns and Risks Ahead
The Bank of England also plans to begin cutting interest rates starting in September 2025. According to the latest update, the central bank is expected to reduce rates once every quarter—meaning one cut every three months. This signals a shift in monetary policy towards a more accommodative stance. The ultimate goal is to support economic activity as inflation continues to retreat.
Additionally, the target level for UK interest rates is expected to drop to around 3.0%. This trajectory is being referred to as the “cooling” path. Based on this direction, the interest rate could reach 3% by the third quarter of 2026. Weak inflation data in the UK, coupled with a series of underwhelming economic indicators from the United States, has led to new expectations that central banks may lean more heavily on monetary easing policies to maintain stability and prevent economic slowdowns.
In the Eurozone, where inflation remains a concern, there is also a growing possibility of rate cuts—especially if inflation trends continue downward. However, this outlook could shift rapidly if sudden economic shocks emerge, such as tariff disputes or sharp wage increases that reignite inflationary pressures. One such risk is already visible in labor negotiations. In 2024, collective bargaining agreements in key economies like Germany, Spain, and the Netherlands have pushed wages higher, driven largely by worker demands in the face of persistent inflation.
Nevertheless, the broader European labor market remains fragile. Policymakers are treading carefully, aware that aggressive wage growth could lead to policy tightening if inflation returns unexpectedly. Countries like France and Italy have already flagged concerns about inflation inertia, while geopolitical tensions between Russia and Europe continue to pose a serious external risk—adding another layer of uncertainty to economic planning and interest rate decisions.
As these dynamics evolve, both the Bank of England and the European Central Bank are attempting to strike a delicate balance: curbing inflation without stalling growth. The remainder of 2025 and early 2026 will be critical in determining whether this coordinated shift toward rate reductions can avoid triggering further volatility in the global economy.
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