Bank of Japan Leaves Rates Steady, Cuts Forecasts Amid Tariff Uncertainty

By Megumi Fujikawa

TOKYO--The Bank of Japan delivered a back-to-back rate hold and cut growth forecasts as policymakers watch to see how tariffs will affect the economy.

As widely expected, the Japanese central bank maintained its target for the overnight call rate at 0.5%. BOJ Gov. Kazuo Ueda and other officials have voiced concerns about rising uncertainty over the impact of U.S. trade policy and how other countries will respond.

"There are various risks to the 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 in a statement.

Higher tariffs can weigh on the Japanese economy through various channels including slower exports, delayed capital expenditure plans, and deteriorating business and consumer sentiment.

Reflecting tariff concerns, the BOJ revised down its growth forecasts in its quarterly outlook report released Thursday.

The policy board expects Japan's economy to expand 0.5% in the fiscal year ending March 2026, compared with the 1.1% growth predicted in January. It forecasts growth of 0.7% and 1.0% in the year ending March 2027 and in the following year, respectively.

Japan's economy minister, Ryosei Akazawa, is visiting Washington again this week for trade talks. While Treasury Secretary Scott Bessent said the U.S. is making progress on trade negotiations with some countries, including Japan, it remains unclear whether Tokyo will secure an exemption from additional tariffs.

Complicating the BOJ's policymaking is Japanese households' continued struggle with inflationary pressures. The central bank expects inflation to stay around its 2% target in the near future.

The bank's policy board anticipates that consumer inflation excluding volatile fresh food prices will reach 2.2% in the current fiscal year, compared with the 2.4% it projected in January.

It predicts that the measure of inflation will rise 1.7% in the year ending March 2027 and 1.9% in the following year, the report showed.

With domestic inflation persistent and wage growth improving steadily, the BOJ said it would keep seeking further interest-rate hikes if the economy and inflation develop in line with their projections.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com