Tokyo, May 1, 2025 | Amid Uncertainties with U.S. Tariffs. ☠️🇺🇸☠️
The Bank of Japan (BoJ) kept its benchmark interest rate at 0.5% this Thursday, opting not to advance in the monetary normalization cycle in light of increasing global uncertainties, especially regarding the erratic tariff policy of the U.S. government.
The decision to keep interest rates unchanged for the second consecutive meeting was widely expected by the markets, but what drew attention was the significant cut in Japan's economic growth projections for the next two fiscal years.
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📉 Growth under review: BoJ lowers GDP forecast until 2027
The BoJ now expects Japan's Gross Domestic Product (GDP) to grow only 0.5% in the fiscal year ending March 2026, down from the previous estimate of 1.1%. For the following fiscal cycle, which ends in March 2027, the projection has also been revised down — from 1% to 0.7%.
According to the central bank, the revision reflects a combination of factors: external pressures linked to the slowdown in international trade, currency volatility, and the already perceptible impacts of U.S. tariffs on Asian industrial goods.
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🛑 Stable rates: rate hike cycle suspended due to geopolitical caution
The basic interest rate in Japan has been fixed at 0.5% since January 2025, following the historic end of the negative interest rate policy. However, the bank's stance in this second quarter shows that the priority now is to manage geopolitical risk, not inflation — which remains relatively stable in the archipelago.
“We are at a wait-and-see point. The U.S. tariff policy can profoundly alter our trade and industrial outlook. We need to assess the next steps cautiously,” stated an internal source from the BoJ under the condition of anonymity.
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🌐 Trump and tariffs: uncertainty that paralyzes decisions
In a press conference shortly after the statement was released, BoJ President Kazuo Ueda made it clear that the biggest source of current uncertainty is the foreign policy of the United States — particularly the tariff escalation promoted by the Trump administration.
“🗣️Given a relatively low degree of certainty in our outlook, there is a considerable chance that we may have to adjust our forecasts, depending on changes in factors including tariffs,” Ueda stated cautiously.
The recent tariffs imposed by Washington affect sectors such as automobiles, electronics, and industrial components — fundamental pillars of Japan's trade balance.
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💴 Volatile yen, attentive markets, and pressure on Ueda
The BoJ's decision and Ueda's comments immediately reverberated in the markets. The yen exhibited strong volatility, with the USD/JPY pair fluctuating between 155 and 157 in the first hours after the announcement. The Tokyo Stock Exchange operated with a slight decline, reflecting fears about future growth.
Analysts point out that the BoJ may be heading toward a dilemma: keep interest rates low to protect activity amid external shocks, or raise rates if the yen continues to depreciate and provoke imported inflationary pressure.
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📊 Conclusion
The Bank of Japan clearly signaled that its current focus is less on inflation and more on geopolitical uncertainty. With declining growth projections and external tariffs as the main threat, Japanese monetary policy enters a containment mode.
Instead of raising or cutting rates, the BoJ now seems willing to wait, observe — and recalibrate as global noise translates into real numbers.
