BOJ Holds Rates, Raises Inflation Outlook Amid Uncertainty

The Bank of Japan (BOJ) has maintained its policy interest rate at 0.5% while raising its inflation forecasts, signaling cautious optimism following a recent U.S.-Japan trade deal that has helped reduce some economic uncertainty. Core inflation is now projected at 2.7% for the current fiscal year, up from 2.2%, with increases also forecast for 2026 and 2027 due to persistent food price rises. Despite heightened expectations for a potential rate hike later in 2025, BOJ Governor Kazuo Ueda emphasized ongoing caution, citing the need to monitor wage trends and global risks, including U.S. tariff policies. Market reactions were subdued, with modest movements in the yen and Japanese government bond yields. Domestic political instability and changing bond issuance patterns continue to complicate the outlook. Investors remain watchful for further signals from the BOJ and developments in U.S. monetary policy.