The Bank of Japan kept interest rates steady and cut its growth forecasts on Thursday, as uncertainty surrounding U.S. tariffs clouds the outlook for the world's fourth-largest economy.
But the central bank projected inflation would stay roughly on course to hit its 2% target in coming years, a sign that risks from U.S. tariffs might only delay, not derail, its rate hike plans.
As widely expected, the BOJ kept short-term interest rates steady at 0.5% by a unanimous vote.
Given growing headwinds from higher U.S. tariffs, the board slashed its economic growth forecasts for fiscal 2025 and 2026 in a quarterly outlook report due after the meeting.
While the board also cut its core consumer inflation forecasts, it projected inflation staying around 2% through the fiscal year ending March 2028.
"If our economic and price forecasts are realised, we will continue to raise our policy rate," the BOJ said in a statement.
"Considering extremely high uncertainties over the future course of trade and other policies in each jurisdiction," however, the BOJ will scrutinise economic price developments and guide policy without pre-conception, it said.
Markets are closely watching Ueda's post-meeting news conference for clues on how U.S. President Donald Trump's tariffs would affect the BOJ's rate-hike path.
YEN MOVES IN FOCUS
Rising trade tensions from Trump's sweeping tariffs have sent shockwaves through markets and led to a sharp downgrade in the International Monetary Fund's global growth forecasts.
The path towards policy normalisation may take longer than expected as trade tensions prod big exporters, which had spear-headed pay hikes, to reconsider wage plans.
With inflation well exceeding its target, however, the BOJ signalled that risks from higher U.S. tariffs won't derail a cycle of rising wages and inflation seen as crucial to keep raising rates.
The BOJ raised its short-term interest rate to 0.5% in January in the belief the economy was on the cusp of sustainably achieving its 2% inflation target. While Ueda has signalled the BOJ's readiness to keep raising rates, Trump's tariffs have complicated its decision on when and how far it can h ..
Analysts polled by Reuters in April said they expected the BOJ would hold rates steady through June, with a 25-basis-point hike expected next quarter by a slight majority of respondents.
Source Name : Economic Times