The Bank of Japan kept interest rates unchanged in a unanimous decision, reaffirming its intention to raise rates in the future if economic growth and inflation develop in line with its forecasts. The central bank revised its economic growth and inflation outlook for 2025 upward, maintaining the benchmark interest rate at 0.5% with full support from all nine board members a move widely anticipated amid ongoing uncertainty over U.S. trade tariffs and Japan’s domestic political landscape.
Board members raised their projections for both consumer price index (CPI) inflation and GDP growth for 2025. The bank now expects core inflation which excludes fresh food and energy prices to range between 2.8% and 3.0%, up from the previous forecast range of 2.2% to 2.4%. Overall inflation is now projected to range between 2.7% and 2.8%, compared to the earlier range of 2.0% to 2.3%.
As for economic growth, the bank slightly upgraded its GDP forecast to a range of 0.5% to 0.7%, from a previous range of 0.4% to 0.6%. The bank noted that real interest rates remain significantly low and reiterated its commitment to continue raising the key interest rate and adjusting the level of monetary easing if its economic outlook materializes.
Bank of Japan Governor Kazuo Ueda had previously hinted at this direction, increasing market anticipation for any hawkish signals from the bank. The BOJ’s comments led to a notable appreciation of the Japanese yen, with the U.S. dollar falling 0.5% to 148.74 yen. Meanwhile, Japanese equities continued their upward trend, with the Nikkei 225 Index rising by approximately 0.6%.
This decision comes amid growing political uncertainty in Japan, particularly following the ruling Liberal Democratic Party’s loss of its majority in the Upper House.
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