【MACRO Insight】 Global economic turmoil and challenges: Behind the ECB's interest rate cut and US-Ja

On the global economic stage today, a storm caused by tariff tensions and uncertainty is quietly brewing, posing a serious threat to economic growth in the eurozone. The European Central Bank is facing unprecedented pressure, and the market generally expects it to cut interest rates for the third time this year to cope with this complex situation.

Data from the London Stock Exchange Group (LSEG) showed that the latest market pricing reflects the probability of the ECB cutting interest rates by 25 basis points, while the probability of a larger rate cut (50 basis points) is close to 6%. If the cut is 25 basis points, the ECB's deposit facility rate will fall to 2.25%, far below the high of 4% in mid-2023.

The relatively rapid series of rate cuts comes as euro zone inflation has been running below 3% and has recently come close to the ECBs 2% target. However, economic growth in the region has been sluggish. Carsten Brzeski, head of global macro at ING, said global tariffs have rekindled concerns about euro zone growth, forcing the ECB to cut rates.

At its March meeting, the ECB tweaked its language on monetary policy, saying it was "becoming significantly less restrictive." The shift was interpreted by some economists as a signal that policymakers were becoming more cautious about lowering interest rates further. However, the roller-coaster ride of global trade and tariffs over the past few weeks has somewhat changed that view.

Economists at Deutsche Bank Research believe that the future interest rate path is expected to be "open-ended," meaning that policymakers will not commit to a specific interest rate path in advance, but will make decisions in a data-dependent manner at each meeting. This open-ended wording allows the policy stance to remain restrictive, shift to neutral, or turn to stimulative depending on the data.

Meanwhile, U.S. President Donald Trump unexpectedly negotiated directly with a Japanese trade delegation in Washington on Wednesday over a series of tariffs he has imposed on global imports, saying "significant progress" had been made. Japan was one of the first countries to formally launch negotiations, an early test of whether Washington is willing to back down on tariffs.

Japanese officials are seeking a deal to avoid higher tariffs that Trump has threatened to impose on U.S. trading partners. In Wednesday‘s talks, Trump’s negotiator was Ryomasa Akasawa, an ally of Prime Minister Shigeru Ishiba and a relatively junior economic revitalization minister.

Tokyo did not expect Trump to participate in what it viewed as a preliminary fact-finding visit and had been hoping to limit discussions to trade and investment matters, according to sources familiar with Tokyos plans. Speaking to reporters after the meeting, Akazawa gave few details of the discussions but said the two sides had agreed to hold a second meeting later this month and that Trump said reaching a deal with Japan was a “top priority.”

Japan hopes to reach the best solution that is most beneficial to both countries as soon as possible, and strongly calls for the removal of tariff measures against Japan. Akazawa revealed that there was no discussion on exchange rate issues, and the discussion on automobile tariffs will continue. He believes that the United States also hopes to reach an agreement within 90 days. He also emphasized that the exchange rate situation is determined by fundamentals, and Japan did not manipulate the foreign exchange market to depreciate the yen.

U.S. Treasury Secretary Scott Bessant and Commerce Secretary Howard Lutnick, along with other officials, also attended the meeting. Bessant said more than 75 trading partners have requested talks with Washington since Trump announced sweeping tariffs on dozens of them earlier this month, so whoever negotiates first will have a "first-mover advantage." He said Japan, a military ally, would likely be given priority.

At present, the global economy is facing complex challenges. The ECB's interest rate cut decision and the US-Japan trade negotiations reflect the difficult choices that countries are making in dealing with global tariff tensions and uncertainties. In the future, the direction of the global economy will depend on how policymakers in various countries find a balance in this turbulent period to achieve stable economic growth.

During this process, the market will continue to pay attention to the monetary policy adjustments of central banks and the progress of international trade negotiations to assess the risks and opportunities of the global economy. At the same time, governments also need to strengthen cooperation and jointly deal with global trade and tariff issues to avoid further economic recession.