San Francisco Frontiers - Bank of Japan expected to hold rates

In January, the central bank hiked rates to their highest level in 17 years on the back of bumper inflation readings for the world's fourth largest economy.

But since then US 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.

Economists say bank officials are likely to keep the key interest rate at its current level of 0.5 percent when a two-day policy meeting concludes on Wednesday.

"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 last week.

"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 US Federal Reserve and Bank of England 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 BoJ is gradually normalising its policies following years of aggressive monetary easing to try and jump-start the stagnant Japanese economy.

But headline Japanese inflation has been above the BoJ's two-percent target every month since April 2022, and a year ago the bank finally lifted its interest rates above zero, before increasing them to 0.25 percent in July.

The BoJ's Ueda said after the latest decision in January 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 percent pay rise for members this year, a three-decade high and up from last year's preliminary reading of 5.3 percent.

"If the annual spring labour 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.

K.Torres--SFF