The Bank of Japan held interest rates on Wednesday as the rising risk of a global trade war and potential downturn in the US weighed on Japan’s hope for a sustained economic revival.
The unanimous decision, which came at the conclusion of a two-day meeting of the Japanese central bank’s policy board, left the short-term policy rate at about 0.5 per cent.
The result was widely forecast by economists and had been priced in by markets, according to traders.
In a statement accompanying the decision, the BoJ warned that “high uncertainties” remained around Japan’s economic activity and prices. The central bank made particular reference to the “evolving situation regarding trade and other policies in each jurisdiction”.
In a press conference on Wednesday afternoon, BoJ governor Kazuo Ueda warned that uncertainty from abroad had sharply heightened since January, when the bank last raised rates, and that it was difficult to quantify the risk.
“Over the past month or so, there have been rapid changes in the extent and the speed of US tariffs,” said Ueda. “However, there are elements that we may not know until April, so the level of uncertainty will remain high.”
He added that the central bank would monitor changes in US policy trade policy.
Japanese policymakers’ concerns centre not just on whether its own exports will be subject to US President Donald Trump’s tariffs, but also on the impact of multiple trade wars on the Japanese economy, which depends heavily on global growth.
Trade minister Yoji Muto’s efforts to secure tariff exemptions from his US counterpart Howard Lutnick this month did not produce the hoped-for guarantees. Attention has now turned to whether Japanese cars will be subject to levies that Washington has said could be imposed as soon as April.
The BoJ statement also the domestic dilemma of “normalising” interest rates at the same time that the country’s economy is emerging from decades of stagnant or falling prices. A majority of economists expect the BoJ to increase rates at least once more in 2025, though some see the likelihood as fading.
The BoJ noted that Japanese households were benefiting from wage increases, but also suffering from record-high rice prices. The central bank warned that prices were likely to remain high throughout fiscal 2025.
Ueda said while food prices were being driven higher by weather, among other factors, higher prices affected sentiment and could raise household inflation expectations.
He noted that underlying inflation, which the BoJ measures using its own calculations, remained below the bank’s target of 2 per cent.
Japan is entering the final days of this year’s shunto wage negotiation season, which has delivered a solid round of pay increases for full-time and part-time workers.
At the company level, Japanese groups including Hitachi, Fujitsu and Toshiba have handed workers the biggest pay rises in more than 25 years.
On Friday, Rengo, the country’s largest labour union representing more than 1.5mn workers, said its negotiations had resulted in average wage gains of 5.46 per cent, which it said was the largest pay bump in 33 years.
That was up from the 5.28 per cent increase secured in 2024, which was then the highest in more than a quarter of a century.
Ueda said the 2025 wage negotiations had shown gains broadening to include smaller companies.
But Stefan Angrick, Japan economist at Moody’s Analytics, warned that the shunto result was undercut by recent inflation. Headline consumer price inflation, he noted, jumped to 4 per cent year on year in January, meaning the newly won pay gains would not stretch as far as hoped.
“Even if next year’s shunto negotiations deliver a similarly strong result, it would take two more years for real wages to return to pre-pandemic levels,” said Angrick.
