Bank of Japan Keeps Rates Steady as Trump Tariffs Threaten Exports

Japan's central bank held its policy rate at 0.5% for the second consecutive meeting Thursday, as tariffs imposed by US President Donald Trump weighed on the country's economic outlook.

The move was consistent with a Reuters poll of economists and comes at a time of global trade tensions as the United States pressures countries to sign business deals or face "reciprocal" tariffs.

Headline inflation in Japan has remained above the BOJ's 2% target for 36 consecutive months, giving the central bank room to raise interest rates as it seeks to normalize monetary policy following a virtuous cycle of wage and price increases. Tariffs imposed by Trump have complicated plans to raise interest rates.

In its policy decision, the central bank stated that it will continue to raise interest rates "if our economic and price forecasts are met."

Japan's growth will slow down due to both a decreasing trend in other economic regions and lower domestic company profit returns.

The central bank foretells that inflation levels will stay between 2.5% to 2.5% during fiscal year 2025 and between 1.5% to 2.0% for fiscal year 2026. The statement issued for the policy decision predicts that the CPI will align with 2% during fiscal year 2027.

April through March is the fiscal year in Japan. On May 16, the nation will release its fiscal first-quarter GDP figures.

While full-year GDP growth in 2024 slowed to 0.1%, a significant decline from the 1.5% growth observed in 2023, the Japanese economy grew 1.2% year over year in the fourth quarter.

Following two weeks of supposedly fruitless trade negotiations between Washington and Tokyo, the BOJ made its most recent decision.

The decision led to a 0.54% increase for Nikkei 225 and a 0.23% increase for Topix at 12.30 p.m. Japanese time.

During this period the Japanese yen lost 0.29% value against the US dollar resulting in a closing exchange rate of 143.49.