TOKYO (March 19): The Bank of Japan (BOJ) kept interest rates steady on Wednesday in a widely expected move, as policymakers chose to spend more time gauging how prospects of higher US tariffs would affect the export-focused economy.

The decision came as fears of a global slowdown caused by US President Donald Trump's tariff policy overshadow wage and price data showing Japan is making progress in durably achieving the BOJ's 2% inflation target.

Highlighting the conflicting challenges, the central bank said rising rice costs would push up inflation at home while trade policies of other countries cast doubts over Japan's economic outlook.

"Concerning risks to the outlook, there remain high uncertainties surrounding Japan's economy and prices including the evolving situation regarding trade and other policies in each jurisdiction," the BOJ said in a statement.

Having just raised interest rates in January, the board voted unanimously to maintain the bank's short-term policy rate at 0.5% at a two-day meeting that ended on Wednesday.

"Persistent price pressures warrant further monetary tightening in Japan, but growth risks are building as well. Trade tensions leave a cloud over Japan's export outlook, and it is not clear yet whether Japanese consumers will step up purchases on the back of higher wages," said Fred Neumann, chief Asia economist at HSBC in Hong Kong.

"In the end, however, it is a question of 'when' not 'if' the BOJ will hike again," he said, adding that the next move could come as early as June.

Market reaction to the decision was muted with the dollar moving sideways around ¥149.50.

BOJ Governor Kazuo Ueda said uncertainty brought about by US tariffs remained high.

"We will scrutinise how US trade policy unfolds, how it affects the US and other global economies, and how that all impacts Japan's economic and price outlook," Ueda said at a press briefing following the meeting.

The BOJ's meeting came hours before that of the US Federal Reserve, which is also expected to keep interest rates steady to watch how Trump's planned April tariff hikes unfold.

"Japan's economy is recovering moderately, albeit with some weak signs," the BOJ said in a statement announcing the rate decision. It also maintained its assessment that consumption is rising moderately as a trend.

The BOJ has signalled its readiness to raise interest rates further if Japan makes progress in sustainably achieving its 2% inflation target.

It has also said any price increases must come from solid wage gains and consumption, rather than a temporary boost from raw material costs, for the BOJ to keep hiking rates.

Big Japanese firms last week offered bumper pay hikes in wage talks with unions for a third straight year, backing the BOJ's view that sustained wage gains will keep inflation durably around its target.

But Trump's back-and-forth comments on tariffs have roiled markets and stoked fears of a US recession, which could hit Japan's economy, analysts say.

The US raised tariffs on imports of steel and aluminum to 25%, effective last week, without exemptions. Washington is expected to announce auto tariffs on April 2, alongside a more sweeping agenda of reciprocal tariffs.

The uncertainty over Trump's tariff plans is already taking a toll with a Reuters poll showing Japanese manufacturers' business mood soured in March.

While exports rose 11.4% in February from a year earlier, core machinery orders — a leading indicator of capital expenditure — fell 3.5% in January, data showed on Wednesday.

The BOJ will take into account such data in a quarterly review of its growth and price forecasts at a subsequent policy meeting on April 30-May 1, which will be crucial to the timing and pace of further rate hikes.

The BOJ ended a massive stimulus programme last year on the view Japan was on the cusp of meeting its long-term inflation objectives.

It has signaled readiness to raise rates further if economic and price developments move in line with projections. Over two-thirds of economists polled by Reuters expect the BOJ to hike rates to 0.75% in the third quarter, most likely in July.

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