BoJ Holds Rate Steady, Yen Weakens on Policy Cautions

On May 1, 2025, the Bank of Japan (BoJ) held its benchmark interest rate at 0.5%, as widely expected. However, the central bank significantly downgraded its economic growth and inflation forecasts, citing rising uncertainty from U.S. tariffs and global trade tensions.

The Japanese Yen weakened sharply against major currencies, including the soft US Dollar, following the BoJ’s dovish tone.

Revised Economic Growth and Inflation Outlook

In its latest outlook, the Bank of Japan (BoJ) downgraded both GDP and inflation projections, citing heightened uncertainty from U.S. trade policies—particularly the impact of tariffs.

Governor Kazuo Ueda acknowledged that such external factors have made it challenging to accurately forecast economic conditions, leading to the downward revisions.

Updated Economic Forecasts:

• GDP Growth: Fiscal 2025 growth is now expected at 0.5%, sharply down from 1.1%. Fiscal 2026 was revised to 0.7%, from 1.0%.
• Core Inflation: Projected to rise by 2.2% in fiscal 2025, down from the previous 2.4% estimate. The BoJ now expects to reach its 2% inflation target by late FY2027—delayed by one year.

Despite the postponement of its inflation goal, Ueda clarified that this does not necessarily delay the next rate hike. In fact, he suggested that shifts in U.S. trade policy could prompt the BoJ to adjust its stance more swiftly.

Market Reaction: Yen Slips on Hike Delay

Following the BOJ’s announcements, the Japanese yen weakened against the U.S. dollar and other majors, slipping to the 144 range from the lower 140 zone. This depreciation reflects market expectations that the BOJ may delay further rate hikes amid the downgraded economic outlook.

(USDJPY, 4-H Chart Analysis; Source: Ultima Market MT5)

From a technical perspective, USDJPY has surged toward the 145.00 level after forming a potential reversal pattern near the 142.00 support. The pullback in rate hike expectations has fueled a recovery in the U.S. dollar, strengthening the pair against the yen.

With this reversal pattern now taking shape, further upside remains likely, especially as the Japanese yen continues to face pressure. Unless broader market sentiment shifts significantly—such as renewed concerns over global trade uncertainty that might weaken the U.S. dollar—the yen is expected to remain on the defensive.

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