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3d ago

Bank of Japan Holds Rates at 0.5%, Cuts Growth Forecasts Amid US Tariff Uncertainty

The central bank revised GDP and inflation projections downward and extended its outlook to 2028, signaling a cautious approach to future rate hikes.

A passerby walks past in front of the Bank of Japan headquarters in Tokyo, Japan January 23, 2025. REUTERS/Issei Kato
People walk in front of the Bank of Japan building in Tokyo, Japan January 23, 2024. REUTERS/Kim Kyung-Hoon
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Overview

  • The Bank of Japan unanimously decided to maintain its policy rate at 0.5% following a two-day meeting on May 1, 2025.
  • GDP growth forecasts were sharply reduced to 0.5% for fiscal 2025 and 0.7% for fiscal 2026, reflecting the impact of US trade tariffs on global trade and Japan's export-driven economy.
  • The BOJ adjusted its inflation outlook, projecting core inflation at 2.4% in fiscal 2025 and 2.0% in fiscal 2026, while extending its forecast horizon to fiscal 2028 for the first time.
  • Market reactions included a decline in the yen to a two-week low and a drop in 10-year Japanese government bond yields to a three-week trough.
  • Governor Kazuo Ueda emphasized a data-dependent approach to monetary policy, leaving the door open for future rate hikes if inflation trends align with the bank's 2% target.