Bank Of Japan Retains Rate As Expected; Cuts Growth Outlook Amid Tariff Uncertainty

(RTTNews) - The Bank of Japan left its interest rate unchanged for the second consecutive meeting on Thursday, and downgraded its growth projections citing trade tariff threats.

The policy board decided, by a unanimous vote, to hold the uncollateralized overnight call rate at around 0.50 percent. This was the highest level since the global financial crisis in 2008.

Previously, the bank had raised the benchmark rate to the current level from 0.25 percent in January.

The bank said it will pay due attention to the global trade policies and its impact on Japan's financial and foreign exchange markets and also on its economic activity and prices.

If the outlook for economic activity and prices are realized, the bank will continue to raise the policy rate and adjust the degree of monetary accommodation, the bank said.

In its quarterly Outlook for Economic Activity and Prices report, the bank downgraded its fiscal 2025 growth outlook to 0.5 percent from 1.1 percent and the projection for the fiscal 2026 to 0.7 percent from 1.0 percent.

The economy is forecast to expand 1.0 percent in the fiscal 2027.

Inflation outlook for fiscal 2025 and 2026 were also lowered mainly due to the fall in crude oil prices and the downward revision of the GDP growth rates.

Inflation was projected to ease to 2.2 percent in the fiscal 2025 compared to the previous forecast of 2.4 percent. The estimate for the fiscal 2026 was trimmed to 1.7 percent from 2.0 percent. For the fiscal 2027, inflation was seen at 1.9 percent.

The bank said risks to economic activity and prices are skewed to the downside for fiscal 2025 and 2026.

Final Purchasing Managers' survey results released earlier in the day showed that the manufacturing sector contracted less than initially estimated in April. The au Jibun Bank factory PMI rose to 48.7 from 48.4 in the previous month. The flash reading was 48.5.

However, there were steeper falls in both overall new orders and export sales due to weaker customer spending and subdued demand conditions.