Nomura has warned that hasty tariff negotiations between the United States and other nations are exacerbating economic uncertainty, with inflation risks and potential historical parallels requiring central banks like the Federal Reserve and Bank of Japan to proceed with caution.

**Chaotic Tariff Negotiations**

The Trump administration's unilaterally announced tariff policies have created global chaos. The U.S. is simultaneously negotiating with multiple countries but rushing to reach "agreements" due to personnel shortages, leading to vague details and disputes. For example, the U.S.-Japan agreement initially failed to clarify whether the 15% tariff was an additional rate or a total rate ceiling, with subsequent confirmation that it represents the maximum total rate.

This haphazard approach stems from the U.S. Trade Representative's Office (USTR) having only 250 employees, while the Commerce Department's International Trade Administration (ITA) has about 2,200 people, though the actual manpower dedicated to negotiations is limited. Tariffs inherently reduce economic efficiency, and the Trump administration's approach—such as imposing 50% tariffs on India (25% reciprocal tariff + 25% additional tariff)—ignores strategic considerations.

The report notes that tariff uncertainty makes it difficult for businesses to formulate commercial plans, potentially leading to further contraction in overall economic activity.

**Black Monday Replay Risk**

Nomura draws parallels to the 1985 Plaza Accord, emphasizing similarities between current circumstances and historical events. Following the Plaza Accord, the dollar plummeted 36.5% against the yen over 17 months, yet U.S. stocks hit new highs with inflation initially absent as companies compressed profits to maintain market share.

However, when the dollar fell below 150 yen, it triggered Japanese investors to sell U.S. bonds, causing Treasury yields to soar. Then-Fed Chairman Paul Volcker's intervention stabilized markets, but his successor Alan Greenspan's hesitation ultimately led to Black Monday on October 19, 1987.

Currently, Trump's tariffs and deportation of illegal immigrants are planting seeds of inflation, though the impact is delayed—companies need time to assess whether to raise prices or lobby for exemptions. While inflation has not yet materialized, enormous risks lurk beneath the surface.

**Fed and Bank of Japan at a Crossroads**

The Federal Reserve and Bank of Japan face starkly different challenges. The Fed hesitates to cut rates due to inflation risks from tariffs and labor shortages, despite pressure from the Trump administration—such as Treasury Secretary Bessent advocating model-based rate cuts of 150-175 basis points. However, existing models cannot assess the impact of large-scale tariffs or mass deportations.

Nomura believes Fed Chairman Powell must remain vigilant, as accelerating inflation combined with economic slowdown could trap the U.S. in stagflation, forcing the Fed into difficult trade-offs between curbing inflation and protecting the economy.

The Bank of Japan, meanwhile, has delayed rate hikes due to tariffs' impact on Japan's economy, despite weak yen exacerbating food inflation. The Liberal Democratic Party's defeats in the 2024 House of Representatives and 2025 Upper House elections were primarily due to inflation's impact on livelihoods.

Nomura suggests Japan should raise rates while economically feasible to stabilize the yen and suppress inflation, avoiding reliance on fiscal subsidies due to massive fiscal deficits. The Fed must learn from 1987 and closely monitor inflation dynamics.

Trump's tariff policies are not merely economic issues but threaten global stability. History shows that inflation's lagged effects and market loss of confidence in the Fed could trigger market collapse. Nomura believes Japan should prioritize rate hikes to ease political pressure, while the Fed must resist government demands for rate cuts and guard against stagflation risks. Otherwise, hasty decisions could repeat Black Monday's mistakes, intensifying global economic turmoil.