The Bank of Japan (BoJ) kept its key interest rate unchanged at 0.5% on Thursday, raising inflation and growth forecasts while flagging heightened risks from U.S. trade policy under President Donald Trump.
The central bank lifted its core inflation projection for 2025 to 2.8%, up from 2.3%, but cautioned that external pressures — including U.S. tariffs and global trade disputes — could dampen domestic corporate profits and export demand.
“Growth is likely to moderate due to policy shifts and economic slowdowns abroad,” the BoJ said. “However, accommodative financial conditions are expected to offer support.”
The bank noted “positive developments” such as Trump’s trade agreement with Japan last week, but warned of “high uncertainties,” especially as Trump expands tariffs to India, South Korea, and potentially reignites a trade war with China in August.
Japan’s inflation has remained above the BoJ’s 2% target for three years, though officials attribute the rise largely to temporary food price spikes. The bank had exited negative rates in March 2024 and raised rates again in January but has since paused further hikes.
Analysts expect the BoJ may resume tightening by October, depending on political stability and economic data. Prime Minister Shigeru Ishiba’s coalition currently lacks a parliamentary majority, complicating fiscal plans.
