Yen Retreats as BOJ Revises Growth Forecast Amid Trade War Tensions

The yen fell as the BOJ cut growth forecasts due to U.S. tariffs and held rates, prompting investor caution amidst trade war speculation. The yen hit its lowest point since April 10. The BOJ expects inflation goals to be met by fiscal 2026, delaying previous projections.

On Thursday, the yen weakened as the Bank of Japan (BOJ) adjusted its growth forecasts downward, influenced by U.S. tariffs, and maintained its current interest rates. This move was closely monitored by investors as hopeful signs of trade war de-escalation loomed, alongside anticipation for forthcoming U.S. labor market data.

The yen depreciated by up to 1.1% to 144.74 per dollar, marking its lowest point since April 10, before slightly rebounding to 144.23. While the BOJ's unanimous decision to hold rates was expected, the lowered economic outlook diminished prospects for future rate hikes. "The BOJ's revisions on growth and inflation were more significant than anticipated," noted Mohamad Al-Saraf, a Danske Bank FX research associate.

Meanwhile, the BOJ projects reaching its 2% inflation target by the latter half of fiscal 2026, a postponement by a year compared to January forecasts. BOJ Governor Kazuo Ueda emphasized caution against hasty rate hikes amid stagnant underlying inflation. Market traders presently factor in a modest 11 basis points of tightening within this year, reflecting a decrease from prior estimates of 16 basis points.

(With inputs from agencies.)