By playing Kihara

TOKYO (Reuters) - Japan's bank hiking cycle is facing its biggest test as tariffs on U.S. President Donald Trump quickly narrowed the window to further increase borrowing costs that remain low two years ago.

After the Post Office’s decision Thursday to keep interest rates steady at 0.5%, Uda said the timing of basic inflation converging on the central bank’s 2% target had “a little backward” – essentially suggesting that amid the decline of higher tariffs, the pause of rising rates was all indicated.

But continuing food inflation, the prospect of ongoing wage hiking, and fear of a new fall in the yen may mean that Boj has many reasons not to completely abandon his hiking plan.

A delicate balancing behavior may mean that the shed will continue to show that its next move will be hiking, but let the market guess the pace and timing of future action.

"The worst case for boj is that the 2% inflation rate will eventually be delayed further due to high-speed growth of high uncertainty," said Akira Otani, a former BOJ economist.

"The ideal approach is therefore to postpone the rate hike as a precaution," Otani said, who said he delayed the estimated time for the next tax rate hike until the six months to January.

Goldman Sachs still expects the shed to eventually raise its policy rate to 1.5% during the current running cycle.

On the surface, the threat of the global trade war on the economy that Japan's export-dependent dependence may be enough to abandon its hiking bias in favor of a more neutral monetary policy stance.

According to new forecasts released on Thursday, the shed is expected to be almost no more than its potential this year. It also cuts out inflation forecasts and sees a bias towards adverse risks, which suggests a decline in belief in price momentum.

Ueda warned that even after a brief stagnation, basic inflation will rejoin its target, but he emphasized his determination to look forward to continuously increase interest rates, even if the determination of sheds will continue to raise tax rates.

History has proven the difficulty of normalizing Japan's hyper-floating monetary policy. The country has not seen short-term interest rates exceeding 0.5% in three decades, trying to repeatedly hinder by stagnant wage growth and external shocks.

Is this different this time?

However, this suspension is not without cost.

Unlike past deflationary woes, core inflation surpassed the shed’s 2% target in three years because of the high cost of stubborn raw materials, resulting in price increases.