Japan’s central bank on Wednesday kept its key policy rate steady at 0.5% in a unanimous vote.

The move, which was in line with market expectations, comes as the Bank of Japan assesses the potential impact of U.S. President Donald Trump’s protectionist trade policies on its export-reliant economy.

“Japan’s economy has recovered moderately, although some weakness has been seen in part,” BOJ policymakers said in a statement, citing “high uncertainties surrounding Japan’s economic activity and prices, including the evolving situation regarding trade … and domestic firms’ wage -and price-setting behavior.”

“Inflation expectations have risen moderately,” the BOJ said, noting that “rice prices are likely to be at high levels and the effects of the government’s measures pushing down inflation will dissipate” through fiscal year of 2025.

The BOJ’s decision comes ahead of the U.S. Federal Reserve’s policy meeting, where the central bank is expected to keep its benchmark interest rate steady.

The BOJ raised short-term rates to 0.5% from 0.25% in January, its highest level since 2008, after ending a massive stimulus program last year. The central bank has signaled its readiness to hike rates further if the economic growth and inflation moves in line with its projections.

The rate-setting board could be discussing another rate hike as soon as May, due to concerns about inflationary pressure from wage gains and stubborn rises in food costs, some analysts said.

Japan’s largest labor union announced on Friday that it managed to secure an average 5.46% increase in wages from April — its largest increase in over three decades.

The Japanese Trade Union Confederation, or Rengo, which has around 7 million members, said that the first tabulation of the results covering 760 unions was 0.18 percentage points higher than last year’s increase of 5.28%.

Small to medium-sized businesses saw an average rate rise of 5.09%, up 0.67 percentage points from last year and the first time since 1992 that the wage hikes for such companies crossed the 5% mark.

UA Zensen, an umbrella group representing retail, restaurant and other industry unions, reportedly said 139 of its member unions received an average increase of 5.37% in monthly wages for full-time workers, slightly less than 2024’s record figure of 5.91%.

Japan saw a 2-year high inflation rate of 4% in January, as well as household spending massively beating expectations in December, with a 2.7% rise year on year.

The December figure was the fastest that household spending had climbed since August 2022, and the first year-on-year rise since July 2024. Household spending subsequently slowed in January to a 0.8% rise.

The BOJ has long reiterated that its goal is to see a “virtuous cycle” of rising prices in wages in Japan.

However, GDP figures released last week seemed to complicate the path for the BOJ, with revised fourth-quarter figures showing Japan’s economy grew 2.2% on an annualized basis, a slower pace than initially reported. The revised data also came in lower than economists’ median forecast.

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