Review of the Bank of Japan’s Financial Policy Decision Meeting
2025-05-05
■ No policy adjustments were made at this meeting; however, the Outlook Report significantly lowered economic and price expectations.
■ The uncertainty surrounding US tariff policy was highlighted, indicating that the US will remain cautious about raising interest rates in the short term.
The Bank of Japan held a financial policy decision-making meeting on April 30 and May 1, deciding to maintain the policy rate, the unsecured overnight lending rate, at the current target of about 0.5%. This outcome aligns with market expectations amid turmoil caused by the US tariff policy and increasing downside risks for both domestic and foreign economies.
In the highly anticipated "Outlook Report," the Bank of Japan strongly expressed its intention to continue adopting an accommodative stance due to the uncertainty surrounding US tariffs. Regarding financial policy, it pointed out that "if the economic and price prospects are realized, the policy interest rate will continue to be gradually raised in accordance with the improvement of the economic and price situation, and the degree of financial easing will be adjusted accordingly," maintaining the basic policy of continuing to raise interest rates. However, as the economic and price expectations for 2025 and 2026 have been lowered, this also suggests that the timeline for interest rate hikes may be delayed. Moreover, there is not only a high degree of uncertainty regarding the economic and price prospects, but it is also assessed that downside risks are greater, demonstrating a strong vigilance about the future outlook. According to the median forecast of the policy committee members, the real GDP growth rate is expected to increase by 0.5% year-on-year in 2025 and 0.7% year-on-year in 2026, down 0.6 percentage points and 0.3 percentage points, respectively, from January. As for the consumer price index (excluding fresh food), it is expected to increase by 2.2% year-on-year in 2025 and 1.7% in 2026, down 0.2 percentage points and 0.3 percentage points, respectively. On the other hand, the newly established forecast for 2027 indicates an increase of 1.9%, suggesting that while prices may have weakened temporarily, they will gradually recover in the later period of the forecast and approach the 2% target. Regarding the basic upward trend of prices, the statement "it will be roughly maintained at a level consistent with the 'price stability target' in the second half of the forecast period" continues to be used. However, since the forecast period has been extended by one year this time, it effectively delays the timeline for achieving the target.
At the press conference with President Ueda, he emphasized that the outlook is highly uncertain and did not clearly indicate the timing for the next rate hike. President Ueda stated concerning the basic price increase trend, "the trend has slightly adjusted from converging to 2% to rising again after a period of stagnation." He further clarified that "interest rate hikes will not be forced" in the event of weak basic price increases. From this standpoint, the Bank of Japan is expected to maintain a cautious approach and suspend interest rate hikes in the short term until uncertainties are alleviated. The timing of the next rate hike will depend on the progress of tariff negotiations and their impact on the degree of economic slowdown at home and abroad, and may be further postponed within the year. The Bank of Japan's path to normalizing monetary policy is anticipated to be more challenging than before.
■ The uncertainty surrounding US tariff policy was highlighted, indicating that the US will remain cautious about raising interest rates in the short term.
The Bank of Japan held a financial policy decision-making meeting on April 30 and May 1, deciding to maintain the policy rate, the unsecured overnight lending rate, at the current target of about 0.5%. This outcome aligns with market expectations amid turmoil caused by the US tariff policy and increasing downside risks for both domestic and foreign economies.
In the highly anticipated "Outlook Report," the Bank of Japan strongly expressed its intention to continue adopting an accommodative stance due to the uncertainty surrounding US tariffs. Regarding financial policy, it pointed out that "if the economic and price prospects are realized, the policy interest rate will continue to be gradually raised in accordance with the improvement of the economic and price situation, and the degree of financial easing will be adjusted accordingly," maintaining the basic policy of continuing to raise interest rates. However, as the economic and price expectations for 2025 and 2026 have been lowered, this also suggests that the timeline for interest rate hikes may be delayed. Moreover, there is not only a high degree of uncertainty regarding the economic and price prospects, but it is also assessed that downside risks are greater, demonstrating a strong vigilance about the future outlook. According to the median forecast of the policy committee members, the real GDP growth rate is expected to increase by 0.5% year-on-year in 2025 and 0.7% year-on-year in 2026, down 0.6 percentage points and 0.3 percentage points, respectively, from January. As for the consumer price index (excluding fresh food), it is expected to increase by 2.2% year-on-year in 2025 and 1.7% in 2026, down 0.2 percentage points and 0.3 percentage points, respectively. On the other hand, the newly established forecast for 2027 indicates an increase of 1.9%, suggesting that while prices may have weakened temporarily, they will gradually recover in the later period of the forecast and approach the 2% target. Regarding the basic upward trend of prices, the statement "it will be roughly maintained at a level consistent with the 'price stability target' in the second half of the forecast period" continues to be used. However, since the forecast period has been extended by one year this time, it effectively delays the timeline for achieving the target.
At the press conference with President Ueda, he emphasized that the outlook is highly uncertain and did not clearly indicate the timing for the next rate hike. President Ueda stated concerning the basic price increase trend, "the trend has slightly adjusted from converging to 2% to rising again after a period of stagnation." He further clarified that "interest rate hikes will not be forced" in the event of weak basic price increases. From this standpoint, the Bank of Japan is expected to maintain a cautious approach and suspend interest rate hikes in the short term until uncertainties are alleviated. The timing of the next rate hike will depend on the progress of tariff negotiations and their impact on the degree of economic slowdown at home and abroad, and may be further postponed within the year. The Bank of Japan's path to normalizing monetary policy is anticipated to be more challenging than before.