BOJ: On Hold As Expected, Uncertainty Around Outlook Still High

The BoJ held rates steady at 0.50%, as widely expected. The decision by the board was also unanimous. The central bank nudged down the degree of uncertainty surrounding the outlook. It noted: "it remains highly uncertain how trade and other policies in each jurisdiction will evolve and how overseas economic activity and
prices will react to them." In the previous statement, these uncertainties were judged 'extremely' high. 

• On inflation the central bank noted, "The projected year-on-year rate of increase in the CPI (all items less fresh food) for fiscal 2025 is higher, mainly due to the effects of the rise in food prices. The projected rates of increase in this CPI for fiscal 2026 and 2027 are more or less unchanged."  The current fiscal year projection was raised to 2.7% from 2.2%, while for 2027 it was nudged up to 2.0% from 1.9%.
• On growth: "Japan's economic growth is likely to moderate, as trade and other policies in each jurisdiction lead to a slowdown in overseas economies and to a decline in domestic corporate profits and other factors, although factors such as accommodative financial conditions are expected to provide support." It added: "Comparing the projections with those presented in the previous Outlook for Economic Activity and Prices (Outlook Report), the projected real GDP growth rates are more or less unchanged." Current financial year growth is forecast at 0.6%, while for 2027 it is forecast at 1.0%.
• Risks to growth are skewed to the downside, while inflation risks are generally balanced the BoJ noted.
• The BoJ maintained its policy outlook: "WILL CONTINUE TO RAISE POLICY RATE IF ECONOMY, PRICES MOVE IN LINE WITH FORECAST, IN ACCORDANCE WITH IMPROVEMENTS IN ECONOMY, PRICES" - (Rtrs).
• On balance, the statement brings us marginally closer to a further rate hike, given the central bank's degree of uncertainty was slightly softened. Still, the BoJ seems unlikely to act in the near term (the next policy meeting is on Sep 19, followed by Oct 30). It has time to assess key macro trends and obtain greater clarity around the outlook (i.e. move away from high uncertainty around the trade/external outlook).