In its quarterly report on economic prospects, the Bank of Japan (BoJ) has lowered its expectations for the growth of Japan’s Gross Domestic Product (GDP) to 0.5%, compared to the previous estimate published in January, which projected a 1.1% increase.
This forecast pertains to the fiscal year 2025, which began in Japan last April and will conclude in March 2026.
The BoJ also decided to reduce the growth forecast for the fiscal year 2026 to 0.7%, down from the 1% estimated in the previous report.
Regarding inflation, the central bank now anticipates an increase of 2.3% in 2025, 0.2 percentage points higher than the January forecast and well above the institution’s annual target of 2%.
All of this is a consequence of risks facing the Japanese economy and the global situation arising from the tariff policies of the United States and other countries, according to the BoJ.
In particular, the central bank highlighted vulnerabilities affecting the Japanese economy caused by tariff uncertainty, which are reflected in a potential decline in “stable exports and industrial production.”
In this context, the BoJ expects economic growth to be moderate due to the “slowdown of foreign economies and the decline in corporate profits.”
“The introduction of broad tariffs will impact global trade activity, and the increased uncertainty regarding these policies, in turn, will broadly impact business and family confidence worldwide, as well as financial markets,” declared the central bank.
Also today, the BoJ decided to keep interest rates unchanged amid the global economic uncertainty generated by the new U.S. tariff policy.
At the end of a two-day meeting, the institution opted to maintain the reference rate at 0.5%, after having last increased it in January.
The BoJ’s monetary policy committee decided, unanimously, to maintain the strategy and stated that “the Japanese economy has moderately recovered, although it presents some weaknesses,” according to the communiqué adopted at the end of their meeting.
The decision aligns with the expectations of most analysts, who did not foresee further interest rate hikes in the world’s fourth-largest economy after three increases over the span of 10 months.
To counter the return of inflation in Japan after two and a half years, the BoJ began tightening rates in March 2024, following a decade of ultra-accommodative monetary policy in which rates remained virtually at zero.
