The Bank of Japan is keeping its policy interest rate steady and mentioned that inflation is heading toward stable 2% growth on Wednesday.

BOJ noted that a recent spike in rice prices is expected to keep upward pressure on consumer costs. The central bank did not signal any immediate acceleration in its tightening pace, although it reiterated that further rate increases remain on the table. 

“There seems to be no change in the BOJ’s stance that it is considering adjusting the degree of monetary easing and raising interest rates further,” said Yusuke Matsuo, an economist at Mizuho Securities.

The BOJ emphasized the importance of trade developments and overseas economies in shaping Japan’s outlook. Economists warn that possible U.S. tariffs, particularly on autos, could undermine Japan’s export-driven recovery by hitting demand and discouraging investment. 

Mizuho Research & Technologies estimates that a 40% drop in Japanese car shipments to the U.S., if subjected to a 25% tariff, would cut exports and production by 1.8 trillion yen per year, or about $12.06 billion, trimming 0.33% off nominal gross domestic product. 

Despite these concerns, February auto exports to the U.S. jumped 13.9% from a year earlier, after a 21.8% surge in January, reflecting pre-tariff buying.

Even with external risks, the BOJ stuck to its view that Japan’s economy has recovered moderately, albeit with some pockets of weakness. A further sign of improving conditions came from Japan’s largest labor union group, which reported average wage increases of 5.46% this year, the highest in 34 years. Ueda has repeatedly said the bank will keep raising rates if the economy and prices develop as expected, and some economists predict another increase could come as early as May 1.

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