April 23, 2025 – The Bank of Japan (BOJ) has issued a warning to Japanese financial institutions, urging them to remain vigilant against the risks posed by heightened uncertainty surrounding global trade policies. This follows the significant market volatility triggered by U.S. President Donald Trump’s recent tariff announcements.

In its semi-annual financial stability report, the BOJ highlighted the ongoing stability of Japan’s financial system, noting, “Japan’s financial system has maintained overall stability.” However, the BOJ also acknowledged the increasing risks that financial institutions face, particularly since the beginning of April, when uncertainty over trade policies, geopolitical tensions, and global financial market developments intensified.

The report emphasized the volatility caused by Trump’s tariffs, which were announced on April 2, impacting major U.S. trading partners. The BOJ cautioned that Japanese banks must be prepared for potential financial disruptions, warning that fluctuations in stock prices and rising default risks among corporate clients could threaten their stability.

Despite a moderate economic recovery that has slowed bankruptcy and default rates, the BOJ noted that growing uncertainties surrounding global trade policies could negatively affect the financial health of Japanese firms. The report also drew attention to the increasing exposure of Japanese banks to foreign non-bank financial entities, such as investment trusts and private equity funds, as well as the growing presence of overseas hedge funds in the Japanese stock and bond markets.

The BOJ’s report suggests that the deepening ties between Japanese banks and foreign non-bank sectors could make Japan’s financial system more susceptible to shifts in global financial markets and foreign investment influences, both directly and indirectly.