Bank of Japan leaves policy rate unchanged amid U.S. tariff concerns

March 19, 2025 (MLN): The Bank of Japan on Wednesday left its policy rate unchanged as it assesses the impact of U.S. President Donald Trump's aggressive tariff plans on the domestic economy.

At the end of a two-day policy meeting, the BOJ stood pat on the current rate of 0.5%.

The central bank, which has been shifting away from a decade of ultra-easy monetary policy, raised the key short-term rate from 0.25% at the previous meeting in January.

"There remain high uncertainties surrounding Japan's economic activity and prices," the BOJ said, citing overseas trade policies as a risk factor amid heightening tensions triggered by Trump's tariff policies and countermeasures by other countries.

The decision suggests the BOJ is taking a cautious approach toward the next hike, which is expected to bring the policy rate to 0.75%, the highest level in about 30 years, despite some positive signs in the domestic economy.

The rate of inflation has been at or above the bank's 2% target for almost three years, while major firms have promised bumper pay increases for the third year in a row in this year's wage negotiations.

The Trump administration imposed 25% tariffs on steel and aluminum imports earlier this month despite vehement opposition from its trading partners.

The president is also considering extending the levy to auto imports, which would deal a heavy blow to the Japanese industry.

When deciding on policy, the central bank will look into how Trump's moves impact the world economy and markets, as well as the Japanese economy and the country's prices, Governor Kazuo Ueda said at a press conference in late February.

In Japan, households are feeling the pinch from inflation, with rice prices rising at the fastest rate since comparable data became available in 1971.

Prices of vegetables, such as cabbage and tomatoes, are also soaring amid unfavorable weather conditions and increasing production costs.

Japan's core consumer prices, a key indicator for the BOJ, rose 3.2% in January from a year earlier, the fastest pace in 19 months.

The inflation rate has been at or above the bank's 2% target since April 2022.

To mitigate the impact, many Japanese firms agreed to lift salaries in this year's labor-management wage negotiations, with the average increase reaching 5.46%, according to the Japanese Trade Union Confederation's preliminary survey released last week.

Under Governor Ueda, the BOJ ended its negative rate policy in March last year and increased its policy rate in July and January.

Many market players expect the next rate hike to come around the summer, forecasting the bank will tighten its monetary policy roughly every six months, based on the timing of recent hikes.

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