Japan's BoJ leaves key interest rate unchanged, cautions about outlook

"There remain high uncertainties surrounding Japan's economic activity and prices, including the evolving situation regarding trade," the bank said in a statement after a two-day monetary policy meeting concluded.

"Tariffs can directly affect the economy through trade especially production volumes, inflation and prices. 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," bank governor Kazuo Ueda told reporters later.

Headline inflation in Japan has been above the central bank's 2-per cent target every month since April 2022, and a year ago it finally lifted its interest rates above zero, before increasing them to 0.25 per cent in July.

“The employment and income situation has improved moderately. Private consumption has been on a moderate increasing trend despite the impact of price rises and other factors,” the bank said.

Concerning risks to the outlook, there remain high uncertainties surrounding Japan's economic activity and prices, including the evolving situation regarding trade and other policies in each jurisdiction and developments in overseas economic activity and prices under such situation, developments in commodity prices, and domestic firms' wage- and price-setting behaviour, the bank noted.

“Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. In particular, with firms' behaviour shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices,” it added.

Fibre2Fashion News Desk (DS)