The Bank of Japan decided at its meeting that concluded this morning, Thursday, May 1, to keep monetary policy and interest rates unchanged. Members voted unanimously to keep interest rates at 0.50%, as expected, for the second consecutive meeting, following a hike in the December meeting.
The Bank of Japan’s quarterly forecast report, issued every three months, showed the bank lowering its growth and inflation forecasts and indicated that the uncertainty surrounding global markets due to the tariffs announced by Trump temporarily halted the rate hike process.
The bank lowered its growth forecast to 0.5% this year, compared to 1.1% in its January forecast, and to 0.7% next year, compared to 1% in its January forecast. It maintained its 2027 forecast unchanged at 1%. In contrast, the bank lowered its forecast for core inflation, excluding food prices, for this year to 2.2% from 2.4% in its January forecast, and to 1.7% in 2026 from 2% in the previous forecast. Investors reacted pessimistically to the bank’s decision, especially since the bank had intended to continue raising interest rates throughout this year. Now, expectations for this year have been revised downward, with expectations going even further, suggesting the bank may not raise interest rates until next year, 2026, and that we may see the first increase in 2027, by a quarter point. Markets sold off the Japanese yen, which is currently trading at its lowest levels in three weeks against the US dollar, while 10-year government bond yields fell to their lowest levels in three weeks, and the Nikkei index recorded gains of more than 1%.