| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Change | 0bp | 0bp to 0bp | 0bp | 0bp |
| Level | 0.5% | 0.5% to 0.5% | 0.5% | 0.5% |
Highlights
The Bank of Japan's nine-member board voted unanimously to maintain the target for overnight interest rate at 0.5%, as widely expected, amid high uncertainty over global growth and inflation sparked by stiff Trump tariffs, after having stood pat in March. Previously, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in a third rate hike during the current normalization process that began in March 2024.
Citing"significantly low" real interest rates, the board repeated its conviction that it should be able to continue raising the target for overnight interest rates and"adjust the degree of monetary accommodation" without hurting economic activity. Given extremely high uncertainties over the global trade war launched by President Trump, it is important for the bank to carefully examine how growth and inflation evolve and how financial markets move and judge whether the outlook will be realized without any preconceptions.
The board revised down its growth and inflation forecasts for both fiscal 2025 and fiscal 2026 ending in March 2027. It also noted that risks to its GDP and CPI outlook is skewed to the downside. Despite the trade war headwinds, the BOJ continues to expect Japan will steer clear of slipping back into deflation and settle around 2% inflation. In the second half of the projection period (fiscal 2025 through fiscal 2027), underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target.
The median projections by the board from its quarterly Outlook Report:
FY24 core CPI (ex-fresh food) +2.7% (actual) vs. +2.7% in January
FY25 core CPI (ex-fresh food) +2.2% vs. +2.4% in January
FY26 core CPI (ex-fresh food) +1.7% vs. +2.0% in January
FY27 core CPI (ex-fresh food) +1.9% (first estimate)
FY24 GDP +0.7% vs. +0.5% in January
FY25 GDP +0.5% vs. +1.1% in January
FY26 GDP +0.7% vs. +1.0% in January
FY27 GDP +1.0% (first estimate)
The trade conflict prompted the BOJ to downgrade its overall assessment, saying, Japan's economic growth is likely to moderate as trade and other policies lead to a slowdown in overseas economies and to a decline in domestic corporate profits despite support from accommodative financial conditions. Thereafter, Japan's economic growth rate is likely to rise, with overseas economies returning to a moderate growth path.
Board members warned that there are various risks to their outlook. In particular, it is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them, the BOJ said. It is therefore necessary to pay due attention to the impact of these developments on financial and foreign exchange markets and on Japan's economic activity and prices.
BOJ policymakers are closely monitoring whether expected high wage increases by major firms will spread to smaller firms in fiscal 2025 starting on April 1 at a time when real wages are falling, which could hurt consumption further and generate deflationary pressures.
The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until a year ago. The BOJ under Governor Kazuo Ueda, who took office in April 2023, shifted gear in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework, following a decade of large monetary easing aimed at reflating the economy. The board stood pat in December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.
Citing"significantly low" real interest rates, the board repeated its conviction that it should be able to continue raising the target for overnight interest rates and"adjust the degree of monetary accommodation" without hurting economic activity. Given extremely high uncertainties over the global trade war launched by President Trump, it is important for the bank to carefully examine how growth and inflation evolve and how financial markets move and judge whether the outlook will be realized without any preconceptions.
The board revised down its growth and inflation forecasts for both fiscal 2025 and fiscal 2026 ending in March 2027. It also noted that risks to its GDP and CPI outlook is skewed to the downside. Despite the trade war headwinds, the BOJ continues to expect Japan will steer clear of slipping back into deflation and settle around 2% inflation. In the second half of the projection period (fiscal 2025 through fiscal 2027), underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target.
The median projections by the board from its quarterly Outlook Report:
FY24 core CPI (ex-fresh food) +2.7% (actual) vs. +2.7% in January
FY25 core CPI (ex-fresh food) +2.2% vs. +2.4% in January
FY26 core CPI (ex-fresh food) +1.7% vs. +2.0% in January
FY27 core CPI (ex-fresh food) +1.9% (first estimate)
FY24 GDP +0.7% vs. +0.5% in January
FY25 GDP +0.5% vs. +1.1% in January
FY26 GDP +0.7% vs. +1.0% in January
FY27 GDP +1.0% (first estimate)
The trade conflict prompted the BOJ to downgrade its overall assessment, saying, Japan's economic growth is likely to moderate as trade and other policies lead to a slowdown in overseas economies and to a decline in domestic corporate profits despite support from accommodative financial conditions. Thereafter, Japan's economic growth rate is likely to rise, with overseas economies returning to a moderate growth path.
Board members warned that there are various risks to their outlook. In particular, it is extremely uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and prices will react to them, the BOJ said. It is therefore necessary to pay due attention to the impact of these developments on financial and foreign exchange markets and on Japan's economic activity and prices.
BOJ policymakers are closely monitoring whether expected high wage increases by major firms will spread to smaller firms in fiscal 2025 starting on April 1 at a time when real wages are falling, which could hurt consumption further and generate deflationary pressures.
The BOJ appears to be still on course for two more 25 basis point rate hikes that would eventually take the overnight interest rate target to 1%. The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until a year ago. The BOJ under Governor Kazuo Ueda, who took office in April 2023, shifted gear in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework, following a decade of large monetary easing aimed at reflating the economy. The board stood pat in December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.
Market Consensus Before Announcement
The Bank of Japan’s nine-member board is expected to remain cautious amid high uncertainty over a global trade war that has already hurt sentiment among large manufacturers, after having decided unanimously to maintain the target for overnight interest rate at 0.5% in March. Previously, the panel voted 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in January in a third rate hike during the current normalization process that began in March 2024. Members are closely monitoring whether high wage increases by major firms will spread to smaller firms in fiscal 2025 that began on April 1 at a time when real wages are falling, which could hurt consumption further and generate deflationary pressures.
The bank stays on course toward normalizing its monetary policy stance further after a decade of large-scale cash injections aimed at turning around stubborn deflation that had been in place until Governor Kazuo Ueda took office about two years ago. “If the outlook for the underlying inflation rate settling toward 2% is realized, we will raise interest rates and adjust the degree of monetary easing accordingly,” the governor told reporters last week after a meeting of the G20 financial policymakers. But Ueda also said he will “monitor data carefully without any presumptions” to ensure that the underlying measure of inflation “converges” around the bank’s 2% target amid high uncertainty over a global trade war initiated by President Trump.
The bank stays on course toward normalizing its monetary policy stance further after a decade of large-scale cash injections aimed at turning around stubborn deflation that had been in place until Governor Kazuo Ueda took office about two years ago. “If the outlook for the underlying inflation rate settling toward 2% is realized, we will raise interest rates and adjust the degree of monetary easing accordingly,” the governor told reporters last week after a meeting of the G20 financial policymakers. But Ueda also said he will “monitor data carefully without any presumptions” to ensure that the underlying measure of inflation “converges” around the bank’s 2% target amid high uncertainty over a global trade war initiated by President Trump.
Definition
The Bank of Japan is the central bank of Japan. The Bank of Japan Act states that the bank's monetary policy should be aimed at"achieving price stability, thereby contributing to the sound development of the national economy." The nine-member policy board reviews economic conditions at home and abroad before making a policy decision. There is no specific time for the announcement. The board holds eight two-day Monetary Policy Meetings a year, in January, March, April, June, July, September, October and December. At each meeting, the board votes on the proposals on the bank’s monetary policy stance and the basic guideline on how to achieve the policy target submitted by the chair of the board, who is the bank governor.
Description
The announcement of the bank’s monetary policy decision after each meeting can cause a market reaction, even when there is no change to the policy stance. Markets tend to look ahead toward a policy shift, pricing in a change to the bank’s targets for overnight and long-term interest rates, the pace of financial asset purchases or the scale of market operations.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
