Interest Rates are Held Stable by the Bank of Japan as Trump Threats Rise

To give policymakers more time to assess the potential impact of increased U.S. tariffs on the export-dependent economy, Japan maintained interest rates at their current level on Wednesday.

The decision was widely anticipated because of concerns about a global slowdown brought on by U.S. President Donald Trump’s tariff policies, which overshadowed wage and price statistics that showed Japan was making headway toward the BOJ’s 2% inflation objective.

Investors are watching Governor Kazuo Ueda’s post-meeting conference for hints about when the bank may hike rates next, a move made more difficult by the conflict between Trump’s trade policy uncertainties and positive domestic statistics.

At a two-day meeting on Wednesday, the board unanimously decided to keep the bank’s short-term policy rate at 0.5% despite having recently hiked interest rates in January.

The BOJ’s meeting took place just hours before the U.S. Federal Reserve’s, which is likewise anticipated to maintain stable interest rates to monitor the progress of Trump’s anticipated tariff rises in April.

The BOJ expressed optimism that growing wages will support consumption and the overall economy when it said, “Japan’s economy is recovering moderately, albeit with some weak signs,” announcing the rate decision.

According to the announcement on Japan’s price forecast, rising rice prices and the diminishing impact of fuel cost-cutting subsidies would push core consumer inflation higher through fiscal 2025.

According to the statement, “Japan’s economic and price outlook remains highly uncertain,” partly because of the risks associated with each nation’s trade policy repercussions.

Large Japanese companies this week backed the BOJ’s belief that persistent salary growth will maintain inflation around its 2% goal by offering massive pay increases in wage discussions with unions for the third consecutive year.

However, economists believe that Trump’s back-and-forth remarks on tariffs have agitated markets and fueled worries of a U.S. recession, which might affect Japan’s export-dependent economy.

The United States boosted taxes on steel and aluminum imports to 25%, beginning last week, without exclusions. On April 2, Washington is anticipated to unveil car tariffs as part of a broader plan for reciprocal tariffs.

Per the channel survey, Japanese manufacturers’ business mood dropped in March, indicating that the uncertainty surrounding Trump’s tariff proposals has already been negatively impacted.

Core machinery orders, a key measure of capital investment, decreased by 3.5% in January, according to statistics released on Wednesday, while exports increased by 11.4% in February compared to the same month last year.

Trump’s tariff increases will be a significant factor in the (OECD) Monday forecast that global GDP will decline slightly from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026.

The timing and speed of future rate rises will be significantly influenced by the BOJ’s consideration of this data in a quarterly assessment of its growth and pricing projections at a later policy meeting on April 30-May 1.

After concluding an extensive stimulus program last year, the BOJ hiked short-term rates to 0.5% in January, believing Japan was close to reaching its long-term inflation targets.

It has indicated that it is prepared to boost rates even further if pricing and economic developments go as anticipated. According to over two-thirds of analysts surveyed by the channel, the BOJ is expected to raise rates to 0.75% in the third quarter, most likely in July.