Bank of Japan to hold rate steady as concern over global outlook mounts

BOJ Expected to Keep Interest Rate Unchanged Amid Global Economic Uncertainties

The Bank of Japan (BOJ) is expected to keep its benchmark interest rate unchanged this week as concerns over global economic prospects mount due to escalating trade tensions.

Governor Kazuo Ueda and his fellow board members are set to keep the policy rate at 0.5 per cent at Wednesday’s conclusion of a two-day gathering, according to all 52 economists surveyed by Bloomberg.

The picture of the global economy has dramatically darkened since the board conducted the third rate hike of Ueda’s tenure in January, a meeting held just after Donald Trump began his second term in the White House and made it clear he intended to follow through on the tariff campaign that has since roiled markets and generated widespread uncertainty.

A Key Focus

A key focus at this week’s meeting will be any signals from Ueda related to the timing of the next move, as well as any cautionary words over protectionist trade policies and their potential impacts.

BOJ’s Stance

While the BOJ remains intent on keeping rates on a gradual upward trajectory, Ueda will probably indicate there’s little need to rush ahead with the next move after last week saying he’s "very much" worried about the global economy.

Economist’s View

"The real challenge for governor Ueda is starting," said Nana Otsuki, a senior fellow at Pictet Asset Management Japan. "The BOJ will do its utmost to have markets price in the next rate hike, as the stock market has gotten nervous. It makes sense to expect another hike around the middle of this year."

BOJ Officials’ Assessment

BOJ officials are leaning towards keeping rates unchanged so they can take time to assess the impact of the January hike as well as weigh the tide of uncertainties sweeping through the global economy, sources familiar with the matter told Bloomberg earlier this month.

Domestic Economic Data

Domestically, the news is still relatively good. Economic data of late have backed the case for the BOJ to stay on track for further rate increases. The nation’s largest umbrella group for unions said on Friday its members had secured pledges from companies for the biggest wage hikes in 34 years, the second straight year that negotiations produced blockbuster results.

One-Year Anniversary

The March gathering marks the one-year anniversary since Ueda ended the world’s last negative rate regime as he scrapped the most radical monetary easing program in the modern era. Since then, the governor pressed ahead with two more rate hikes, and bond traders have lately been adjusting their views on how high rates might go.

Market Expectations

Japan’s benchmark 10-year bond yields have risen since the January meeting, hitting the highest level since 2008 last week. BOJ watchers raised their projection for the terminal rate to 1.25 per cent, a Bloomberg survey showed. The estimate was only 0.5 per cent a year ago.

Conclusion

The BOJ’s decision this week will be closely watched by markets, as investors seek clarity on the timing of the next rate hike and the potential impact of protectionist trade policies. With global economic uncertainties mounting, the BOJ’s stance on interest rates will be crucial in shaping the country’s economic outlook.

Frequently Asked Questions

Q: What is the expected interest rate at the BOJ’s upcoming meeting?
A: The BOJ is expected to keep its benchmark interest rate unchanged at 0.5 per cent.

Q: What is the current economic climate like in Japan?
A: The domestic economic data is still relatively good, with wage hikes and positive economic indicators.

Q: What is the BOJ’s stance on interest rates?
A: The BOJ remains intent on keeping rates on a gradual upward trajectory, but Ueda may indicate there’s little need to rush ahead with the next move.

Q: What is the outlook for 2025?
A: With household budgets under strain and a new trade war putting a cap on global growth, the outlook for 2025 is diminishing fast.