Japan's central bank set its policy interest rate at 0.5% on Thursday, its second consecutive meeting as U.S. President Donald Trump's tariffs value the prospects of the country's economy.

The move is consistent with a Reuters poll of economists and amid a time of global trade tensions, as U.S. pressure to sign business deals under threat of “reciprocity” tariffs.

Japan has seen the title inflation rate maintain its 2% target for more than 36 months for 36 consecutive months, which provides central banks with a pay raise as it attempts to normalize its monetary policy in a benign cycle of wage and price growth. But Trump's tariffs have already laid a complex plan to raise interest rates.

The central bank emphasized in its policy decision that it will continue to raise its policy interest rates if our economic and price forecasts are achieved.

It also marks that Japan's growth could be moderate due to slowing in other economies and falling domestic corporate profits.

Meanwhile, the central bank expects inflation to be between 2-2.5% in fiscal year 2025 and between 1.5 and 2% in fiscal year 2026. The CPI could account for about 2% in the fiscal year 2027 and added in its policy decision.

Japan's fiscal year ranges from April to March. The country plans to release its fiscal first-quarter GDP number on May 16.

Japan's economy grew 1.2% year-on-year in the fourth quarter, while the rate of GDP growth in 2024 slowed to 0.1%, a sharp decline from the 1.5% growth in 2023.

Boj's latest decision comes after trade discussions between Washington and Tokyo, which reportedly did not lead to a breakthrough.

After the decision, Nikkei 225 rose 0.54% at 12.30 pm in Japan, while the broad Topix index increased by 0.23%.

Meanwhile, the yen fell 0.29%, against the dollar at $143.49.

After U.S. President Donald Trump criticized Tokyo on Thursday, Japan's currency has been a key issue in trade negotiations, saying Japan "always fight" to keep the yen weak. Last year, Japan began raising interest rates from its super-floating monetary policy hub, which strengthened its currency against the dollar.

The yen has lasted nearly 5% against the dollar since March 18, 2024, and the yen has risen by more than 8% against the Green Guard since Trump took office on January 20.

On Saturday, Japanese Finance Minister Katsunobu Kato denied a report by Yomiuri that said Finance Minister Scott Bessent told him that “the hopeful dollar and a strong yen are desirable”. "Secretary Bessent never mentioned any framework for exchange rates or management of exchange rates," Kato said in an article on X.

While trade dialogue with the U.S. has been “relatively stable,” exports to the U.S. will be under pressure given reciprocity tariffs of 10% and automatic tariffs of 25%.

“In addition, the (Japanese) economy may be more affected by the impact of the global economy, especially China. We believe that hard data will start to show a decline in Japan’s exports, while a slowdown in U.S. consumer spending and employment.”

Citi then said that if this happens, the shed will see a dirty tilt in its exchanges and focus on trade developments, such as Chinese tariffs.

Nomura predicts that the central bank will maintain its "hiking stance" although the company has little to no need to rush to raise interest rates, given the growing downside risk to the economy from U.S. tariffs.

Nomura has not yet predicted the next rate hike date, and Citi predicts it will happen in March 2026.

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