BOJ Stands Pat on Rates, Signals Caution Over Trade Despite Inflation Progress

• BOJ keeps interest rates at 0.5%, assessing impact of U.S. tariffs on Japan’s economy.  
• Inflation near 2%, but global trade risks could delay further rate hikes by the BOJ.  
• BOJ watches global growth slowdown as U.S. tariff uncertainty weighs on economic outlook.

The Bank of Japan (BOJ) announced on Wednesday that it would maintain its current interest rates, keeping the short-term policy rate at -0.1% as it weighs US tariff concerns. 

Policymakers stated they would continue to assess the potential impact of rising U.S. tariffs on Japan’s export-driven economy. Despite this caution, Japan’s 2% inflation target remains on track, supported by recent wage and price data.

Markets widely anticipated the BOJ’s decision, but attention quickly turned to BOJ Governor Kazuo Ueda’s post-meeting briefing. Investors are eager to understand when the central bank might consider raising rates, especially given favorable domestic economic data and ongoing global trade tensions.

The evolving situation around the U.S. President Donald Trump’s tariff policies has created significant uncertainty. The BOJ acknowledged that considerable risks to Japan’s economy and prices persist, with trade and other policy challenges influencing their economic outlook.

While the BOJ previously raised interest rates in January, ongoing concerns about global trade have led to a more cautious approach in this latest decision. 

Inflation Pressures Persist, Rate Hike Potential Looms

Despite the trade-related risks, the BOJ highlighted that price pressures remain persistent, with inflation nearing its 2% target. The recent increase in rice prices and the diminishing effects of previous fuel subsidies are expected to contribute to upward pressure on core consumer prices.

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Fred Neumann, chief Asia economist at HSBC, noted that although further monetary tightening may be needed, there is a risk of weaker economic growth. He indicated that the next rate hike could come as early as June, depending on how the global trade situation develops.

BOJ Monitors Global Economic Slowdown Tied to US Tariffs

In addition to domestic factors, the BOJ is closely monitoring the global economy, particularly the repercussions of U.S. tariffs. The OECD has projected a slowdown in overall global growth from 3.2% in 2024 to 3.0% by 2026. 

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The BOJ will review its growth and price forecasts in its quarterly economic assessment. Analysts expect the BOJ to consider raising rates further if economic conditions continue to align with its projections. 

A Reuters poll of economists revealed that over two-thirds anticipate the central bank will hike rates to 0.75% in the third quarter of 2025, with July being the most likely timing.