Bank of Japan holds rates, lowers growth forecasts

TOKYO

The Bank of Japan on Thursday left its key interest rate unchanged but revised down its growth forecasts, warning that U.S. trade tariffs are fuelling economic uncertainty.

"The introduction of wide-ranging tariffs is expected to impact global trade activity," the central bank said.

"Heightened uncertainties regarding policies including tariffs are likely to have a large impact on business and household sentiment around the world and on the global financial and capital markets."

The BoJ said on Thursday it now expects Japan's gross domestic product (GDP) to rise 0.5 percent in fiscal 2025, down from its previous estimate of 1.1 percent.

In fiscal 2026, it expects GDP in the world's fourth largest economy to expand 0.7 percent, down from 1 percent previously forecast.

"Japan's economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors," the bank added.

However for growth "factors such as accommodative financial conditions are expected to provide support" and "thereafter, Japan's economic growth rate is likely to rise," it said.

The BoJ's decision to stand pat on interest rates, holding them at around 0.5 percent -- following a two-day policy meeting had been widely expected.

Bank officials began lifting borrowing costs last year after nearly two decades of ultra-loose monetary policies aimed at kickstarting torpid economic growth in Japan.