BoJ holds rate at 0.5% as inflation stays above target; politics add uncertainty

TOKYO — Japan’s central bank kept its key interest rate unchanged at 0.5% Friday, a decision that was widely expected as inflation remained above the bank’s 2% target. The Bank of Japan issued the decision after a two-day policy-board meeting.

The BoJ said the economy has recovered moderately, though some weakness has been seen in parts. It noted overseas economies have grown moderately overall. It also cited the U.S. Federal Reserve’s policy move earlier in the week, when the Fed cut its policy rate by 0.25 percentage point, lowering its short-term rate to about 4.1% from 4.3%.

Recent government data show consumer prices rising above the target, in a range between roughly 2.5% and 3%. The BoJ indicated inflation remains above target, which supports a cautious stance. It added that exports could be affected by higher tariffs tied to U.S. President Donald Trump’s policies. There was an uptick in trade activity ahead of the tariffs, but those gains are tapering.

The risks facing the outlook include domestic political uncertainty, as Prime Minister Shigeru Ishiba plans to step down and the ruling Liberal Democratic Party prepares to elect a new leader. The party is expected to field about five candidates in the leadership contest next month, a sign of shifting power dynamics after decades of LDP dominance.

In Tokyo, the stock market has been buoyant in recent days, supported by the Fed’s rate cut and expectations for policy accommodation, though prices were mixed on Friday morning. The benchmark Nikkei 225 had touched a series of records the previous day, while late-morning trading showed slight declines as investors digested the global backdrop.

The BoJ’s stance suggests policy will stay cautious as inflation remains above target. It also underscores the delicate balance for the central bank as it monitors global rate moves, domestic politics, and trade tensions that could influence the outlook for Japan’s economy and exports.