BOJ: Downgrades Both Inflation & GDP Forecasts, Trade Uncertainties Highlighted

As widely expected, the BoJ left its policy rate unchanged at 0.50%, which was a unanimous decision of 9-0 by the board. The economic outlook was downgraded though in terms of both lower GDP and inflation forecasts. It also notes prices and growth risks for the 2025 and 2026 fiscal years rest to the downside. The central bank retained its bias that if the outlook is realized it will raise rates further, but the central bank places a caveat on that given extreme uncertainties around the trade outlook. 

• In terms of core inflation forecasts, the 2025 FY was nudged down to 2.2%, from 2.4%, while 2026 is now at 1.7%, form 2.0% prior, while for 2027 it is at 1.9%, so sub the BoJ's 2% inflation goal.
• The core measure which also excludes energy was nudged up for 2025 FY to 2.3%, from 2.1%. The 2026 FY forecast was nudged down to 1.8% from 2.1% prior. For 2027 this metric was forecast at 2.0%.
• On growth, FY 2025 is projected at 0.5% versus 1.1% prior.  2026 at 0.7%, from 1.0% prior and 2027 was at 1.0%.
• The central bank also noted that real yields remain at a significantly low level, i.e. policy rates can rise further but the overall stance is likely to remain accommodative.
• The key lines from statement: ""If our economic and price forecasts are realised, we will continue to raise our policy rate," the BOJ said in a statement.
• "Considering extremely high uncertainties over the future course of trade and other policies in each jurisdiction," however, the BOJ will scrutinise economic price developments and guide policy without pre-conception, it said." (via Rtrs).
• The next policy meeting is in June, and unless we see a very sharp turnaround on the trade/tariff outlook it's difficult to see the central bank raising rates at this meeting. Current market pricing has very little priced in in terms of BoJ tightening to the end of 2025.