The Bank of Japan (BOJ) left its key interest rate steady on Wednesday in a widely expected move coming in a period of growing economic uncertainty fuelled by U.S. trade tariffs.
Following a two-day policy meeting, the central bank said it was keeping its key interest rate at around 0.5%.
"There remain high uncertainties surrounding Japan's economic activity and prices, including the evolving situation regarding trade," a BOJ statement said.
The bank hiked rates in January to their highest level in 17 years on the back of bumper inflation in the world's fourth-largest economy.
Since then U.S. President Donald Trump has imposed levies on multiple trading partners and imports including steel.
"I am worried about uncertainty regarding overseas economic and price trends," BOJ chief Kazuo Ueda told a parliament session last week when asked what concerned him the most.
"With the dust still settling from January's rate hike... the BOJ will want to gauge the impact of recent monetary policy changes on the economy before making its next move," Stefan Angrick of Moody's Analytics wrote in a note ahead of the policy decision.
"At the same time, a wave of tariff measures and threats from Washington have kept financial markets on edge, adding to the reasons for the BOJ to stand pat," he said.
SPI Asset Management's Stephen Innes said the Federal Reserve (Fed) and Bank of England (BoE) were also expected to hold rates this week "as policymakers take their first collective pulse check on the fallout from Trump's trade policies."
The Japanese central bank is gradually normalizing its policies following years of aggressive monetary easing to try to jump-start the stagnant economy.
But headline inflation has been above the bank's 2% target every month since April 2022, and a year ago it finally lifted its interest rates above zero, before increasing them to 0.25% in July.
Ueda said after the January decision that the pace and timing of future increases would be decided after studying "the impact of this rate hike."
Wage trends are also key, after trade unions said early data showed they had secured an average 5.5% pay rise for members this year, a three-decade high and up from last year's preliminary reading of 5.3%.
The bank said on Wednesday that in Japan, "the employment and income situation has improved moderately."
"If the annual spring labor negotiations lead to significantly higher wages then we believe there is a possibility for an interest rate hike in the summer and another one six months later," Katsutoshi Inadome of SuMi TRUST said.
