The Bank of Japan held its benchmark interest rate steady at 0.25% during its Thursday meeting, aligning with expectations. The central bank expressed confidence that Japan's inflation will hover near its 2% target in the coming years. Should the economy maintain moderate growth, the BOJ has not dismissed the possibility of future rate hikes.
BOJ Governor Kazuo Ueda noted in a news conference that wage and price data were meeting expectations. He added that the BOJ would closely monitor both external and domestic data before deciding on its next steps, emphasizing a cautious approach with no specific timeline for the next rate adjustment.
Following Ueda's comments, the yen briefly strengthened to 151.92 per dollar, down from levels above 153 yen. His statements have fueled market anticipation that the BOJ may tighten monetary policy in December.
In its revised quarterly report, the central bank adjusted its core inflation forecast, expecting inflation to reach around 2% by 2025. The FY2025 inflation forecast was lowered to 1.9% from 2.1%, although near-term inflation risks are viewed as tilted to the upside. The 2026 forecast remains unchanged at 1.9%.
Japan’s recent parliamentary elections, which saw the ruling coalition lose a significant number of seats, have sparked concerns about political paralysis that analysts warn could hinder further rate increases.
Ueda acknowledged that, despite the political shifts, the economic outlook remains intact, but any major policy changes could influence the BOJ’s future decisions.
Experts highlight that, while Ueda attempts to frame the BOJ’s policy as neutral and objective, his comments—especially the assertion that the bank "does not have a predetermined schedule for raising the rate"—contrast sharply with earlier statements suggesting there is "time to think" about potential actions.
Analysts continue to forecast a possible rate hike in December 2024, driven by rising inflation and the promising prospects of wage negotiations, with Rengo predicting a 5% growth next year.
Regarding the yen, analysts note that despite its temporary weakening due to the political climate and the U.S. elections, the long-term outlook for the JPY remains optimistic.
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