The Bank of Japan (BOJ) might not raise interest rates in 2025, according to former BOJ chief economist Seisaku Kameda. He described the BOJ’s outlook in May as cautious, with lower growth and inflation forecasts. This is largely due to U.S. trade policies, pressures from tariffs, and weak demand from abroad. Core inflation is expected to peak at 2.2% in FY2025 but will drop to 1.7% in FY2026, falling below the BOJ’s target of 2%. Kameda emphasized that improvements in U.S. tariff policies are necessary for the BOJ to raise its forecasts in the upcoming July report. With Japanese exports declining and no trade deal in sight with Washington, Kameda suggested that a rate hike might happen in January or March 2026, depending on corporate spending and wage growth. The BOJ raised rates to 0.5% in January but has since adopted a cautious stance, considering risks from the Middle East and U.S. tariffs. A Reuters poll shows that most economists also expect the next rate hike to occur in early 2026.

Impact of Foreign Policies on Japan’s Monetary Decisions

Kameda’s comments illustrate how international policies can influence Japan’s monetary decisions. Although Tokyo raised rates earlier this year, recent official forecasts indicate that global demand is not strong enough to warrant another increase soon. This situation suggests that the central bank must remain patient—not because the domestic economy is weak, but because international circumstances do not support further rate hikes. Concerns about U.S. tariffs are associated with a slowdown in trade, which usually affects business investment and limits wage growth. While core inflation briefly stays above 2%, it is expected to decline, which provides another reason to pause monetary tightening. The gradual decrease in price growth reduces the need for immediate aggressive action. With medium-term inflation projected to be below target, and growth forecasts also being downgraded, the BOJ’s cautious approach becomes clearer.

Future Prospects for the Bank of Japan’s Rate Policy

A key factor that could prompt a policy shift is business spending. If we begin to see noticeable growth in capital spending or overall cash earnings, inflation could become more persistent. Currently, this momentum is lacking, so it’s more likely that the BOJ will keep rates steady for the next few quarters while closely monitoring wage negotiations and export trends. From a trading perspective, interest rate expectations seem stable for the coming year. Until we see stronger indications of inflation, fluctuations in rate-sensitive assets will probably hinge on external factors, especially developments in Washington. It’s essential to keep an eye on any news regarding trade rules or tariff changes, as these could affect when policy changes occur. The current environment suggests a slow improvement rather than a sudden change, with official forecast updates being significant only if underlying conditions start to genuinely shift. Kameda’s timeline of early 2026 is reasonable, and we should expect this interpretation to remain influential unless new data significantly changes the trend. Create your live VT Markets account and start trading now.

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