Bank of Japan keeps rates steady, cuts growth forecasts

The Bank of Japan kept interest rates steady and cut its growth forecasts on Thursday, as uncertainty surrounding U.S. tariffs clouds the outlook for the world's fourth-largest economy.

But the central bank projected inflation would stay roughly on course to hit its 2% target in coming years, a sign that risks from U.S. tariffs might only delay, not derail, its rate hike plans.

As widely expected, the BOJ kept short-term interest rates steady at 0.5% by a unanimous vote.

Given growing headwinds from higher U.S. tariffs, the board slashed its economic growth forecasts for fiscal 2025 and 2026 in a quarterly outlook report due after the meeting.

While the board also cut its core consumer inflation forecasts, it projected inflation staying around 2% through the fiscal year ending March 2028.

"If our economic and price forecasts are realised, we will continue to raise our policy rate," the BOJ said in a statement.

"Considering extremely high uncertainties over the future course of trade and other policies in each jurisdiction," however, the BOJ will scrutinise economic price developments and guide policy without pre-conception, it said.

Markets are closely watching Ueda's post-meeting news conference for clues on how U.S. President Donald Trump's tariffs would affect the BOJ's rate-hike path.

YEN MOVES IN FOCUS

Rising trade tensions from Trump's sweeping tariffs have sent shockwaves through markets and led to a sharp downgrade in the International Monetary Fund's global growth forecasts.

The path towards policy normalisation may take longer than expected as trade tensions prod big exporters, which had spear-headed pay hikes, to reconsider wage plans.

With inflation well exceeding its target, however, the BOJ signalled that risks from higher U.S. tariffs won't derail a cycle of rising wages and inflation seen as crucial to keep raising rates.

The BOJ raised its short-term interest rate to 0.5% in January in the belief the economy was on the cusp of sustainably achieving its 2% inflation target. While Ueda has signalled the BOJ's readiness to keep raising rates, Trump's tariffs have complicated its decision on when and how far it can hike.

Analysts polled by Reuters in April said they expected the BOJ would hold rates steady through June, with a 25-basis-point hike expected next quarter by a slight majority of respondents.