BOJ leaves rates unchanged, slashes 2025 growth forecasts on trade jitters

Investing.com-- The Bank of Japan kept interest rates unchanged as widely expected on Thursday, although it sharply trimmed its 2025 economic growth forecast amid heightened uncertainty over U.S. trade tariffs and their impact. 

The BOJ left its benchmark policy rate at 0.5% for a second consecutive meeting, following a 25 basis point hike in January. 

A majority of BOJ policymakers slashed their gross domestic product forecast for fiscal 2025 to growth of 0.4% to 0.6%, well below its January forecast of 0.9% to 1.1%. 

Policymakers also cut their 2025 core consumer price index inflation forecast to a range of 2.0% to 2.3% from a prior forecast of 2.2% to 2.6%,with the BOJ warning that it now saw a slower path towards inflation sustainably meeting its 2% annual target. 

The BOJ said in a statement that Japan’s economic growth was “likely to moderate” amid a slowdown in overseas economies due to trade headwinds. 

This was in turn expected to spur sluggish inflation, both headline and underlying readings. 

Still, the central bank noted that some drivers of the Japanese economy, specifically private consumption, were expected to trend higher in the coming months on strong wage growth. But a slowdown in corporate profits is expected to limit this upside. 

The central bank warned that the introduction of wide-ranging tariffs was expected to hurt global trade activity, and that uncertainty over more tariffs was likely to have a “large impact” on global sentiment. 

These factors also presented risks to the Japanese economy, as did uncertainty over China’s economic growth. 

The BOJ also warned that disruptions in global trade will spur higher import prices for Japan, which could also weigh heavily on private spending. 

The BOJ’s rate hold and cautious tone comes amid heightened global economic uncertainty in the face of steep U.S. trade tariffs, which were announced by President Donald Trump earlier this year. 

Japan was also slapped with a 24% tariff, although Trump did postpone the measure by 90 days. Japanese diplomats are set to begin high-level trade negotiations with the U.S. this week. 

The Japanese yen weakened after the BOJ announcement, with the USD/JPY pair rising 0.3%. The central bank’s cautious messaging sparked doubts over exactly when it will hike interest rates further this year. 

Sticky Japanese inflation and strong private spending are expected to provide the BOJ with some headroom to raise rates further. But the central bank appears reluctant to act in the face of heightened global economic uncertainty.