BOJ lowers GDP forecasts and sees significant uncertainty tied to Trump’s trade policy 🔎
The Bank of Japan left the short-term interest rate unchanged at +0.50% during its May 1 meeting but presented clearly more cautious forecasts. In the new quarterly report, the board lowered its real GDP forecast for fiscal year 2025 to 0.5% (from 1.1%) and for 2026 to 0.7% (from 1.0%), pointing to the burden from recently announced U.S. tariffs and their impact on corporate profits and global demand.
Inflation is still expected to hover around the 2% target in the medium term, but the previously projected inflation path has been pushed back by about a year:
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Create account Try a demo Download mobile app Download mobile app- core CPI (all items excluding fresh food) is expected to be 2.0–2.5% in fiscal 2025, decline to 1.5–2.0% in 2026, and then return “around 2%” in 2027.
The Bank warned that both growth and price risks are “tilted to the downside” through the end of 2026 and emphasized that the recent rise in import and food costs will ease as weaker activity limits core inflation.
Ueda's press conference
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If Trump makes tariffs zero or at low level, then quicker rate hike could be possible.
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“Uncertainty stemming from trade policies has risen sharply; projections could ‘change significantly’ if tariff negotiations shift.”
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The BOJ will continue raising rates if the economy and prices evolve as expected, but the forecast horizon is “highly data-dependent” and may be “strongly influenced” by tariffs.
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A delay in reaching the 2% target “does not mean a delay in hikes”; chronic labor shortages still support a “virtuous cycle” of wages and prices.
Governor Kazuo Ueda, speaking after the decision, stressed that “uncertainty stemming from trade policies has risen significantly” and that the timing of the next potential rate hike is strongly dependent on U.S. trade policy. He noted that the delay in achieving the 2% target does not mean rate hikes are off the table, pointing to chronic labor shortages that should keep wage — and ultimately price — pressures on an upward path. Ueda also announced a mid-term review of JGB purchase operations.
USDJPY (D1 interval)
Markets interpreted the combination of softer forecasts and a less hawkish tone as dovish. USDJPY is up 1.20% today to 144.50, approaching a key resistance zone around 144.00–145.00 JPY per USD.
Source: xStation 5
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