We expect drags from US tariffs to keep a lid on Japanese growth. Trade talks with the US are taking quite some time. The Bank of Japan (BoJ) recently lowered its inflation forecasts, but upside risks remain. We expect the BoJ to stay on a cautious, gradual hiking path. In its June meeting, the BoJ announced to slow its pace of tapering, as expected. High public debt and rising rates pose challenges, but there are risk-mitigating factors. Meanwhile, the Japanese government bond curve has steepened due to a higher term premium. We do not have indications for structural US debt outflows by Japanese investors, yet. We expect the yen to appreciate versus the US dollar in 2025-2026.