(Bloomberg) — The Bank of Japan kept its benchmark rate unchanged and cited worries over the potential impact from US tariff policies, suggesting that it’s not in a rush to hike for now.
Most Read from Bloomberg
The central bank added a reference to trade policies to its list of risks to the outlook, its statement showed Wednesday. With around two weeks to go before details of President Donald Trump’s additional reciprocal tariffs come out, Governor Kazuo Ueda’s board voted to keep the policy rate steady at 0.5% at the end of a two-day gathering, a result that was in line with the expectations of all 52 economists surveyed by Bloomberg.
The yen weakened as much as to 150 to the dollar following the release, but regained losses as Ueda spoke in the afternoon. The governor repeatedly said that domestic data were largely in line with the outlook, with wages coming in slightly stronger though within expectations. Economists said his comments didn’t necessarily rule out a hike at the next meeting.
The stand-pat decision comes as domestic economic signals suggest further scope for raising interest rates in Japan even as the international landscape darkens and central banks elsewhere in the world mull the timing of rate cuts.
“Wages and prices are on track,” Ueda said during his press conference in the afternoon. “But it’s difficult to judge how much closer we are to achieving our goal when uncertainties over the US and overseas trade policies are high.”
The Federal Reserve is expected to deliver two reductions this year beginning in September, holding steady for now when it makes its next rate decision later in the day, keeping the rate differential with Japan wide.
What Bloomberg Economics Says…
“The economy looks solid enough to bear another rate hike, which we think will come in May. With the spring wage negotiations (shunto) yielding big pay increases again this year, the positive wage-price cycle is shifting into a higher gear — supporting underlying inflation around the 2% target.”
— Taro Kimura, economist
Click here to read the full report.
Japan’s biggest umbrella group for labor unions said last week that early results from annual wage talks were the most robust in 34 years, in a positive sign for personal spending. Meantime, the nation’s overall inflation rate sped up to 4% in January, the highest among Group of Seven economies.
“The BOJ must be uncomfortable with inflation running around 3% when the rate is just at 50 basis points,” said Ayako Fujita, chief Japan economist at JPMorgan Securities, who sees June as the base case for the next hike. “No signs of leaning toward a rate hike today doesn’t mean they are going to keep rates steady.”
At the same time, the BOJ’s additional reference to risks from trade policies indicates growing concerns over the potential impacts from rising tides of protectionism around the world.
The outlook for the global economy has taken a turn for the worse as Trump forges ahead with his tariff campaign. On Monday the OECD cut its world growth forecast to 3.1% for 2025 to account for disruptions to global commerce.
“There is a very high level of uncertainty about US policy, and I think there will be companies that may hold back on capital investment and production plans against this background,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.
For now the BOJ has some time for watching developments after last hiking the rate two months ago. With inflation trends staying more or less in line with the bank’s projections, most economists expect the bank to wait until June or July to raise its policy rate.
The BOJ governor’s tone overall on Wednesday suggested that the BOJ wants to see what Trump announces on April 2 regarding reciprocal tariffs.
“We’d like to review things once the situation’s a little clearer in early April,” Ueda said, adding that the next outlook report should reflect the tariff impacts more clearly.
“It was interesting that Ueda said that uncertainties would get clearer in early April after the implementation of the tariffs,” said Nobuyasu Atago, chief economist at Rakuten Securities Economic Research Institute and a former BOJ official. “I see a higher chance of a rate hike in May given Ueda’s remarks today. Nothing he said denied the chance of that.”
Bond traders were parsing Ueda’s remarks, given the steep upward trajectory in bond yields. Japan’s 30-year bond yields recently rose to the highest level since 2006 and benchmark 10-year yields this month hit the highest level since 2008.
Ueda indicated little inclination to step into the market to stop the ascent, saying that now is not the time, while repeating the official stance that they’ll act if there are sudden moves. The governor dismantled the BOJ’s yield curve control mechanism a year ago.
A key question for the BOJ is whether concerns about developments overseas might make it cautious enough to pause its rate hike path longer than the roughly six-month gap that BOJ watchers currently expect between each move.
Until now there was enough bullishness surrounding domestic data that some 50% of surveyed analysts saw the earliest possible timing for a rate change coming at the next meeting. For now, Ueda appeared to keep his options open.
“The pace of rate hikes going forward depends on future data,” he said. “That’s all I can say.”
–With assistance from Ken McCallum, Yoshiaki Nohara, Erica Yokoyama, Brett Miller and Keiko Ujikane.
(Updates with economist comments, additional background.)
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.
