The Bank of Japan kept its interest rates on hold, as widely expected on Tuesday, and announced a plan to slow the pace of its monthly bond purchases starting from the next fiscal year.
The bank kept its key interest rate at 0.5% for the third consecutive meeting, after raising it by 25 basis points last January. It also stated that, starting in April 2026, it would reduce its bond purchases at a slower pace cutting purchases by 200 billion yen each quarter, down from the current 400 billion yen.
This move is seen as an attempt to ease market disruptions while continuing to provide necessary support to the Japanese economy, which is increasingly under pressure due to high US trade tariffs.
The bank said it will conduct a temporary review of the plan in June 2026 to assess its progress and market conditions.
In its statement, the Bank of Japan explained that the Japanese economy is “gradually recovering, although some weaknesses remain.” It stressed that economic growth may slow in the face of headwinds from trade tensions and weakness in other major economies.
During its previous meeting, the bank lowered its GDP growth forecast for the current year and also projected a slight slowdown in inflation.
Although the gradual reduction of bond purchases provides additional short-term support to the economy, the Bank of Japan remains committed to phasing out its stimulus program progressively, as part of a broader policy to withdraw from years of ultra easy monetary policy.
All eyes are now on Governor Kazuo Ueda’s forthcoming speech for further signals about future monetary policy and the economic outlook especially after he previously stated that the bank would continue raising rates if inflation kept climbing.
It’s worth noting that the Bank of Japan raised interest rates three times last year, lifting them from negative territory for the first time in years.
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