Japan’s central bank maintained its key interest rate at 0.5% in a unanimous vote, aligning with market expectations. The decision comes as the country assesses potential risks from U.S. President Donald Trump’s protectionist trade policies.
The Bank of Japan (BOJ) acknowledged moderate economic recovery but warned of uncertainties, particularly regarding trade and domestic wage and price trends. Trump is expected to announce new tariffs on April 2, raising concerns about reciprocal trade measures.
Analysts anticipate a rate hike later this year, with HSBC’s Fred Neumann predicting a move in June, contingent on evidence of sustained wage growth. The BOJ previously raised rates in January from 0.25% to 0.5%, its highest level since 2008, following the end of its extensive stimulus program.
The BOJ aims to establish a “virtuous cycle” of rising wages and prices. Japan’s largest labor union recently secured a 5.46% wage increase, the largest in over 30 years. Wage hikes for small and medium-sized businesses surpassed 5% for the first time since 1992.
Inflation reached a two-year high of 4% in January, while household spending exceeded expectations with a 2.7% year-on-year increase in December, though it slowed to 0.8% in January. The BOJ noted rising inflation expectations and projected high rice prices, with government anti-inflation measures expected to phase out by 2025.
Revised GDP figures showed Japan’s economy grew at an annualized 2.2% in Q4, lower than initially estimated and below economists’ forecasts. Despite this, the BOJ remains prepared to raise rates if economic conditions align with its projections.