Bank of Japan cut its economic growth forecasts for 2025 and 2026, blaming trade for “extremely high uncertainty”, a move that has raised doubts about future interest rates.
The Central Bank of Japan has issued a quarterly update to its forecast, and a unanimous decision by its policy committee to keep the overnight call rate at "about 0.5%.
BOJ lowered its forecast for GDP growth in 2025 from 1.1% to 0.5%, and its forecast for 2026 from 1% to 0.7%. It also expects inflation to fall below its 2% target to 1.7% in 2026.
Under Gov. Kazuo UEDA, Boj has been reaching the path of “normalization” of his supermonetary policy, and the downgrade shows how Donald Trump’s tariffs have taken the process off the line.
"The uncertainty about future trade and other policies in each jurisdiction and the impact of these policies on economic activity and prices at home and abroad," BOJ said in its Outlook report.
Its growth forecast is based on the assumption that trade negotiations will “progress” to some extent and will avoid significant disruption to supply chains.
The report said risks to economic activity are now “favorable”, and the slowing backdrop of overseas economies could lead to lower corporate profits and fixed investments to slow down.
The commission's two-day meeting was the first of its post office since Donald Trump introduced his "countdown" tariffs in early April, which would be the health of the global economy with exporters.
"The wide range of tariffs is expected to affect global trade activity, and the increased uncertainty about policies, including tariffs, could have a significant impact on business and family sentiment in the global and global financial and capital markets," Boj said.
The policy meeting comes as Japan's trade negotiators held the latest round of talks in Washington, and Tokyo hopes to convince the Trump administration to reduce the threatened tariff burden.
As the turbulence of proposed responsibilities deepens efforts to reach an agreement with Washington, economists believe it is increasingly impossible for prospectors to remain on their path to “normalization.”
At the beginning of the year, many economists predicted that central banks would increase their tax rates every six months or so. The Post Office said in a outlook statement Thursday that potential inflation in consumer price inflation could be slow due to expected economic slowdowns.
But in the medium term, BOJ predicts inflation will remain roughly on track to meet the bank's 2% target for the March 2028 fiscal year.
Given that real interest rates are still at low levels, the shed said it will continue to raise policy rates if its outlook for economic activity and prices is achieved.
UEDA will hold a press conference in Tokyo on Thursday afternoon.