Japan Interest Rate

The Bank of Japan (BoJ) raised its key short-term interest rate by 25 basis points to 0.5%, the highest level in 17 years, in line with market consensus. The move reflected wage hike momentum and steady progress in inflation. It also marked the third rate hike since the central bank ended negative interest rates in March 2024. The central bank also indicated plans for further rate increases and reduced monetary support if economic and price data align with its forecasts. Friday's decision passed with an 8-1 vote, as board member Nakamura dissented. Meantime, in its quarterly outlook, the BoJ lifted its forecasts for core inflation to 2.7% for FY 2024 from October's estimates of 2.5%, citing a growing labor shortage. It projects core inflation to further moderate to 2.4% in FY 2025 and 2.0% in FY 2026. Meanwhile, the central bank slightly lowered its 2024 GDP growth forecast to 0.5% from earlier figures of 0.6%. Growth outlook remains at 1.1% for FY 2025 and 1.0% for FY 2026.

Japan's economy is expected to move closer to achieving sustainable and stable 2% inflation, accompanied by wage increases, according to Bank of Japan Governor Kazuo Ueda. In a speech, he explained that as the economy is still progressing toward stable inflation, the central bank will maintain its accommodative monetary policies, keeping the policy rate below the neutral level for now. "If economic activity and prices continue to improve, we will need to raise the policy interest rate and adjust monetary accommodation accordingly," Ueda stated. The top central banker emphasized that the pace and timing of these adjustments will depend on economic output, prices, and financial conditions. He also reiterated the importance of assessing domestic and global risks to evaluate their impact on Japan's economic outlook, prices, and the likelihood of meeting its inflation targets.

The Bank of Japan (BoJ) maintained its key short-term interest rate at around 0.25% during its final meeting of the year, keeping it at the highest level since 2008 and meeting market consensus. The vote was split 8-1, with board member Naoki Tamura advocating for a 25bps increase. Thursday's decision came despite the US implementing its third rate cut this year, as the BoJ needed more time to assess certain risks, particularly US economic policies under Donald Trump and next year's wage outlook. The board adhered to its assessment that Japan's economy is on track for a moderate recovery, despite some areas of weakness. Private consumption continued its upward trend, aided by improving corporate profits and business spending. Meanwhile, exports and industrial output remained relatively flat. On inflation, the yoy figures have ranged between 2.0% and 2.5%, driven by higher service prices. Inflation expectations showed a moderate rise, and the underlying CPI is expected to add gradually.