BOJ Keeps Key Interest Rate at 0.5% over U.S. Tariff Uncertainty; Lowers Growth Forecasts, Inflation Rate Projections

The Yomiuri Shimbun

17:26 JST, May 1, 2025

The Bank of Japan decided to keep its benchmark short-term interest rate at around 0.5% at a monetary policy meeting on Thursday.

The central bank determined that it is necessary to cautiously examine the impact on both economic and price outlooks stemming from high U.S. tariffs. It also lowered its growth forecasts for fiscal 2025 and fiscal 2026 as well as its inflation rate projections from the figures presented in January.

Following the policy meeting, the BOJ released its quarterly report of the Outlook for Economic Activity and Prices, in which it states its forecasts for the growth rate of Japan’s real gross domestic product and the rate of increase in the core consumer price index – which covers all items except fresh food. The forecasts are the medians of the nine Policy Board members.

The growth forecast for fiscal 2025 was cut to 0.5%, down 0.6 percentage points from the previous projection in January, while that for fiscal 2026 was lowered to 0.7%, down 0.3 percentage points.

The report states that trade and other policies of various countries will lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors.

The BOJ also trimmed its inflation rate expectations to 2.2% for fiscal 2025 and 1.7% for fiscal 2026, down 0.2 percentage points and 0.3 percentage points from the previous projections, respectively. The cited reasons include a decline in oil prices and a slowdown in the pace of economic growth. The bank released its inflation expectation for fiscal 2027 for the first time, which was 1.9%.

According to the report, the BOJ expects its “price stability target” of 2% to be achieved in the “second half of the projection period.”

Regarding future policy operations, the BOJ maintained in the outlook report the wording that it “will continue to raise the policy interest rate and adjust the degree of monetary accommodation.” However, it has now added the caveat “in accordance with improvement in economic activity and prices.”