MNI BoJ Review-May 2025: Policy Unchanged With A Dovish Tilt

EXECUTIVE SUMMARY: 

• At its May 1 meeting, the Bank of Japan (BoJ) voted unanimously (9-0) to maintain its policy rate at 0.5%, citing increasing risks of a global economic slowdown, particularly in light of escalating US tariffs.
• In its Outlook Report, the BoJ downgraded its forecasts for real GDP growth and core inflation. The central bank also delayed its expected timeline for achieving its 2% inflation target.
• Despite the overall dovish shift, Governor Kazuo Ueda attempted to maintain a degree of flexibility in future policy moves. In his post-meeting press conference, Ueda emphasised that a delay in reaching the inflation target does not necessarily imply a delay in future rate hikes.
• The BoJ now appears to be in a more reactive posture, allowing for flexibility in response to global developments rather than committing to a predetermined tightening path.
• Reflecting the shift in the BoJ’s focus from domestic inflation to external risks, some market analysts have revised their expectations for the timing of the next rate hike. While earlier forecasts anticipated a move in the third quarter of 2025, this has now been postponed to the fourth quarter.
• In summary, the BoJ’s May meeting highlighted a more cautious and data-dependent approach amid mounting global uncertainties.

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