While the newly announced trade agreement between the U.S. and Japan exceeded market expectations in terms of scope and structure, UBS warns that the deal could still weigh on Japan’s economic momentum. I posted on the deal yesterday:Investinglive Asia-pacific FX news wrap: Japan Trade Deal Lifts Nikkei, JPY ChoppyAnalysts at the bank point out that despite a seemingly favourable outcome, the imposition of a 15% tariff is expected to drag on Japanese exports and corporate profits. This erosion in external demand and earnings could, in turn, restrain business investment and dampen consumer spending—two pillars of domestic economic activity.UBS estimates that these knock-on effects could shave around 0.4 percentage points off Japan's annual GDP growth, highlighting the fragility of the recovery in the face of persistent global trade uncertainties.In light of this, the bank does not foresee any interest rate hikes from the Bank of Japan in the near term. With the economy likely to remain under pressure, UBS expects the central bank to maintain its accommodative stance through at least mid-2026, delaying any tightening until a more durable recovery takes shape. This article was written by Eamonn Sheridan at investinglive.com.