The Bank of Japan (BOJ) decided to keep its key interest rate unchanged at 0.5%, maintaining its highest level since 2008. The decision, taken at the Monetary Policy Meeting on March 19, 2025, reflects the central bank’s cautious approach as it monitors economic growth, inflation, and global market trends.
BOJ’s stance on monetary policy
The BOJ’s Policy Board voted unanimously to maintain the uncollateralized overnight call rate at 0.5%, signaling a wait-and-watch approach amid moderate economic recovery and inflationary pressures. The central bank emphasized its commitment to stabilizing economic conditions and ensuring a smooth transition toward sustained growth.
Japan’s economic outlook
- The BOJ noted that Japan’s economy has recovered moderately, with steady corporate profits, rising business investment, and improved employment conditions.
- Private consumption has increased, despite price hikes, supported by wage growth and government measures to ease energy costs.
- Inflation expectations have moderately risen, with consumer price index (CPI) growth at 3.0-3.5% recently, mainly driven by higher service sector prices.
- The output gap is expected to improve due to a growing labor shortage, which could fuel wage-driven inflation.
BOJ prepared to hike rates if conditions align
While the BOJ maintained its current stance, it indicated a willingness to raise rates further if economic growth and inflation progress in line with projections. The central bank expects underlying CPI inflation to increase gradually, reaching levels consistent with its stability target in the second half of 2025.
Risks to the outlook
The BOJ cautioned that uncertainties remain high, particularly regarding:
- Global trade policies and economic activity, which could impact Japan’s exports.
- Commodity price fluctuations, which could add inflationary pressures.
- Exchange rate volatility, which is now a more significant factor influencing domestic price levels.
The BOJ reaffirmed its commitment to closely monitor financial and forex market developments, ensuring stability while supporting economic momentum.
(Disclaimer: This article is for informational purposes only and does not constitute financial advice.)