The Bank of Japan (BOJ) left its key interest rate unchanged yesterday and warned about the economic outlook amid global uncertainty fueled by US President Donald Trump’s trade war.
BOJ officials began lifting borrowing costs last year after nearly two decades of ultra-loose monetary policies aimed at kickstarting torpid growth in the world’s number four economy.
However, since coming to office in January the Trump administration has embarked on a hardball campaign to rectify what it says are unfair trade imbalances, and imposed levies on multiple trading partners and imports including steel.
Photo: Reuters
The uncertainty unleashed by that has forced central banks around the world to reassess their recent monetary policies.
The BOJ yesterday after a two-day meeting said it would stand pat on its key rate, having lifted it to a 17-year high of around 0.5 percent in January.
“There remain high uncertainties surrounding Japan’s economic activity and prices, including the evolving situation regarding trade,” it said in a statement.
“Tariffs can directly affect the economy through trade — especially production volumes, inflation and prices,” BOJ Governor Kazuo Ueda told reporters.
“On the other hand, tariffs, or even the prospect of tariffs, can affect the mindset or confidence of households and businesses, which could directly impact spending,” he added.
Moody’s Analytics senior economist Stefan Angrick said the BOJ statement “paints a fairly upbeat picture of the economy, which suggests the central bank is looking to tighten monetary policy further.”
However, “with the dust still settling from January’s rate hike... the BOJ wants to gauge the impact of recent policy changes before tightening further,” he wrote in a note.
Separately, Indonesia’s central bank kept its key interest rate unchanged for a second straight month, seeking to safeguard the rupiah after concerns about the economy’s outlook triggered a market selloff this week.
Bank Indonesia kept its benchmark rate at 5.75 percent yesterday, as predicted by most economists in a Bloomberg News survey. The central bank also maintained its economic growth forecast for this year at 4.7 percent to 5.5 percent and kept its inflation target at 1.5 percent to 3.5 percent.
The decision comes a day after a stock market meltdown that was fueled by a combination of domestic factors — from Indonesian President Prabowo Subianto’s economic policies to a worsening fiscal outlook. A key factor was fear that veteran Indonesian Minister of Finance Sri Mulyani Indrawati would resign, a rumor she allayed on Tuesday afternoon.
“Going forward, Bank Indonesia continues to monitor the prospects for inflation and economic growth in terms of considering further room for monetary easing based on rupiah exchange rate movements,” Bank Indonesia Governor Perry Warjiyo said yesterday.
The bank’s decision was consistent with efforts to keep inflation forecasts for this year and next year under control, maintain the stability of the rupiah and support economic growth, he said.
The rupiah — which has lost more than 1 percent against the US dollar over the past month and is the worst performer in Asia — remains manageable and is expected to be stable going forward, he added.
Additional reporting by Bloomberg
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