Federal Reserve Next Up As Japan Maintains Rates Despite Inflation And Trump Tariff Concerns

The Bank of Japan unanimously voted Wednesday to maintain its benchmark interest rate at 0.5%, as policymakers weigh potential economic impacts from U.S. tariff policies under President Donald Trump‘s administration while monitoring domestic inflation that remains above target.

What Happened: The decision comes as Japan’s Nikkei 225 index rose 0.62% to 38,081.23, while the yen held relatively steady at 149.31 against the dollar.

“Japan’s economy has recovered moderately, although some weakness has been seen in part,” the BOJ said in its statement, noting that underlying inflation pressures continue with consumer prices rising at 3.0-3.5% recently, well above the central bank’s 2% target.

The central bank highlighted “high uncertainties” surrounding Japan’s economic outlook, specifically mentioning “evolving situation regarding trade and other policies in each jurisdiction.”

See Also: Speculators Trim 2025 Rate-Cut Bets Ahead Of March Fed Meeting As Inflation Risks Rise

Why It Matters: The BOJ’s cautious stance mirrors market uncertainties ahead of Wednesday’s Federal Reserve meeting, where U.S. policymakers are expected to hold rates steady while potentially raising inflation forecasts to account for new tariffs.

Fed funds futures currently indicate expectations for three rate cuts by December, though analysts are increasingly skeptical about this timeline. Speculators have trimmed rate-cut bets, with Kalshi market data showing the most favored scenario now anticipates just two cuts, carrying a 24% probability.

The yen, which experienced sharp volatility last year including a 38-year low against the dollar in July 2024, has stabilized somewhat following the BOJ’s rate increase to 0.25% last July.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.