Bank of Japan Keeps Interest Rates Unchanged for Second Consecutive Meeting Amid Trump Tariffs Impacting Exports

The Bank of Japan (BOJ) headquarters in Tokyo, Japan, on Thursday, Oct. 31, 2024. The Bank of Japan kept its benchmark interest rate unchanged.

Japan’s central bank held its policy rate at 0.5% Thursday, for a second straight meeting, as U.S. President Donald Trump’s tariffs weigh on the outlook for the country’s economy. The decision aligns with a Reuters poll of economists and comes amid global trade tensions as the U.S. pressures countries to sign business deals under threats of “reciprocal” tariffs.

Japan has seen headline inflation stay above the BOJ’s 2% target for 36 consecutive months, providing the central bank with room to raise rates as it aims to normalize monetary policy supported by a virtuous cycle of wage and price growth. However, Trump tariffs have complicated these plans.

In its policy decision, the central bank noted that it will consider raising its policy rate “if our economic and price forecasts are realized.” It also indicated that Japan’s growth is likely to moderate due to a slowdown in other economies and a decline in domestic corporate profits.

Meanwhile, the central bank expects inflation to range between 2-2.5% in fiscal year 2025 and 1.5% to 2% in fiscal year 2026. CPI is anticipated to hover around 2% in fiscal year 2027, as stated in its policy announcement. Japan’s fiscal year runs from April to March, with fiscal first-quarter GDP numbers set to be released on May 16.

The Japanese economy grew 1.2% year-on-year in the fourth quarter, while full-year GDP growth in 2024 slowed to 0.1%, a stark decline from the 1.5% growth observed in 2023.

BOJ’s latest decision follows trade discussions between Washington and Tokyo two weeks ago, which reportedly did not lead to any breakthroughs. The Nikkei 225 rose 0.54% as of 12:30 p.m. Japanese time following the decision, while the broad-based Topix index added 0.23%. The yen weakened 0.29% to trade at 143.49 against the U.S. dollar.

Japan’s currency has been a focal point in trade talks, especially after U.S. President Donald Trump’s comments criticizing Tokyo last Thursday, where he stated that Japan “would always fight” to keep the yen weak. Last year, Japan shifted from its ultra-loose monetary policy and began raising rates, leading to a stronger currency against the dollar. Since March 18, 2024 — when Japan moved away from its negative interest rate policy — the yen has appreciated nearly 5% against the U.S. dollar, and since Trump assumed office on Jan. 20, the yen has gained over 8% against the greenback.

On Saturday, Japanese Finance Minister Katsunobu Kato denied a report claiming that Treasury Secretary Scott Bessent suggested a “weak dollar and a strong yen are desirable.” “Secretary Bessent never mentioned anything about exchange rates or a framework for managing them,” Kato stated in a post on X.

Citi Research noted last week that while trade talks with the U.S. had seen “comparatively smooth progress,” exports to the U.S. will face pressure due to a reciprocal tariff of 10% and an auto tariff of 25%. “Additionally, [Japan’s] economy might be more heavily impacted by the global economy, particularly China. We expect hard data to begin showing a decline in Japanese exports alongside a slowdown in U.S. consumer spending and employment.” Should that occur, Citi suggested that the BOJ may adopt a more dovish communication approach and monitor trade developments, such as tariffs on China.

A note from Nomura predicted that the central bank would uphold its “rate hiking stance,” though it sees little urgency for the BOJ to hasten interest rate increases due to rising downside risks associated with U.S. tariff policies. Nomura has not provided a projected date for the next rate hike, while Citi anticipates it will occur in March 2026.

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