BOJ Holds Rates, Cuts GDP Growth Outlook
The Bank of Japan (BOJ) kept its key short-term interest rate unchanged at 0.5% during its May meeting, keeping it at the highest level since 2008 and in line with market consensus. The unanimous decision came amid concerns that U.S. President Trump’s tariffs could slow the U.S. and global economies.
Tokyo is currently negotiating a trade deal with Washington, which could influence the future direction of interest rates. In its quarterly outlook, the BOJ lowered its 2025 GDP growth forecast to 0.5% from a January estimate of 1.0%. The growth outlook for fiscal 2026 was also cut to 0.7% from a previous estimate of 1.0%.
The changes reflect headwinds from trade and other policy risks. The central bank also reduced its forecast for core inflation to 2.2% for fiscal 2025 from a previous estimate of 2.7%. Core inflation is projected to continue to decline to 1.7% in fiscal 2026 but slightly higher to 1.9% in fiscal 2027. Meanwhile, headline inflation is expected to remain in the 2% range through the fiscal year ending March 2028.
Source: Trading Economics
