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The Bank of Japan (BOJ) left interest rates unchanged on Thursday, as expected, but issued a notably more cautious economic outlook for 2025 due to growing global trade risks, particularly from U.S. tariff policies.
At the conclusion of its two-day policy meeting, the BOJ maintained its short-term benchmark interest rate at 0.5%, following its historic January hike—the first in 17 years.
In its latest outlook, the central bank downgraded its GDP growth forecast for fiscal 2025 to a range of 0.4% to 0.6%, from a previous estimate of 0.9% to 1.1%. Inflation projections were also lowered, with core CPI now expected at 2.0% to 2.3%, down from 2.2% to 2.6%. The BOJ warned that Japan’s path to achieving a sustainable 2% inflation rate is likely to be slower than initially anticipated.
The BOJ cited “a moderation in global economic growth” as a key factor, pointing to trade disruptions sparked by sweeping U.S. tariffs under President Donald Trump. In its statement, the central bank emphasized that “uncertainty over more tariffs is likely to have a large impact on global sentiment,” and could depress exports and corporate investment.
Japan has been directly affected by U.S. trade actions, including a 24% tariff on Japanese exports, although the measure has been delayed by 90 days as trade negotiations begin between Tokyo and Washington.
Despite the global headwinds, the BOJ noted that domestic private consumption is expected to remain relatively firm, supported by rising wages. However, it also warned that slowing corporate profits and elevated import prices could limit the strength of household spending.
The yen weakened slightly following the announcement, with the USD/JPY climbing 0.3%, reflecting market doubts about the BOJ’s timeline for future rate hikes.
While sticky inflation and resilient consumption might eventually justify further tightening, the BOJ is likely to remain on hold in the near term, wary of acting amid global economic volatility and fragile external demand.
Markets now await the outcome of the Japan-U.S. trade talks, which could shape the BOJ’s next steps and have wider implications for regional economic stability.
