The Bank of Japan (BoJ) has decided to maintain its key interest rate at around 0.5 percent, a move widely anticipated given the current global economic uncertainties largely stemming from US trade tariffs. This decision was reached following a two-day policy meeting where the central bank carefully considered various economic factors.

In an official statement, the BoJ highlighted the significant uncertainties surrounding Japan's economic activity and price levels, particularly noting the evolving trade situation. The bank's last rate hike occurred in January, pushing rates to a 17-year high in response to substantial inflation in the world's fourth-largest economy. However, since then, the economic landscape has been complicated by US President Donald Trump's imposition of levies on multiple trading partners and imports, including steel.

BoJ chief Kazuo Ueda expressed his concerns about the uncertainty in overseas economic and price trends during a recent parliamentary session. According to Stefan Angrick of Moody's Analytics, the BoJ is likely waiting to assess the full impact of January's rate hike before implementing further changes. Angrick noted that the wave of tariff measures and threats from Washington has created unease in financial markets, providing additional reasons for the BoJ to maintain its current stance.

Stephen Innes of SPI Asset Management suggested that other central banks, such as the Federal Reserve and the Bank of England, are also expected to hold rates steady this week. This collective pause allows policymakers to evaluate the repercussions of Trump's trade policies.

The BoJ has been gradually normalizing its policies after years of aggressive monetary easing aimed at stimulating the stagnant Japanese economy. Headline inflation has consistently exceeded the bank's two-percent target since April 2022. A year ago, the bank raised interest rates above zero and further increased them to 0.25 percent in July. Following the January decision, Ueda stated that future rate adjustments would depend on a thorough assessment of the impact of the recent rate hike.

Wage trends are also a crucial factor. Recent data from trade unions indicate an average 5.5 percent pay rise for members this year, marking a three-decade high and an increase from last year's preliminary reading of 5.3 percent. The bank acknowledged that the employment and income situation in Japan has shown moderate improvement.

Katsutoshi Inadome of SuMi TRUST believes that if the annual spring labor negotiations lead to significantly higher wages, there is a possibility of an interest rate hike in the summer, followed by another six months later.