| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Change | 25bp | 0bp to 25bp | 0bp | 0bp |
| Level | 0.5% | 0.25% to 0.5% | 0.25% | 0.25% |
Highlights
The Bank of Japan's nine-member board decided in an 8 to 1 vote to maintain the target for the overnight interest rate at 0.25%. Board member Naoki Tamura, a former SMBC financial group executive, called for a rate hike to 0.50% but his proposal was voted down by the rest of the board. He argued that risks to inflation were more skewed to the upside, noting that the economy had been evolving along the bank's outlook.
The bank simply said in a statement released at 11:52 a.m. JST Friday (21:52 p.m. EST Thursday) that it"will continue to conduct monetary policy as appropriate," pursuing sustained price stability under its 2% inflation target. It didn't repeat its policy stance outlined in its quarterly Outlook Report for October, in which it said that given real interest rates are"at significantly low levels," the BOJ will"continue to raise the policy interest rate and adjust the degree of monetary accommodation" if economic growth and inflation evolve in line with its latest outlook.
Later, Governor Kazuo Ueda said in his opening remarks at a news conference that he and his colleagues agreed that while the bank's policy stance depends on incoming data,"given that real interest rates are at significantly low levels, if the aforementioned outlook for economic activity and prices will be realized, the bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation." The bank's outlook has not changed since the Oct.30-31 meeting: Gradual economic recovery will continue and inflation will be anchored around its 2% price stability target.
"As for the timing of adjusting the degree of monetary accommodation (i.e. unwinding excess stimulus), we need to make a judgement by carefully monitoring various data and information," Ueda said, adding that the bank needs"a little more information" on the momentum in annual wage talks between unions and management at large firms in the early parts of 2025 that will set the tone for overall base pay hikes in the new fiscal year that starts on April 1. The uncertainty over the incoming U.S. administration's economic policy"remains high."
Going into the Dec. 18-19 meeting, forecasters were almost equally divided over the possibility of a rate hike by 25 basis points between this week and at the bank's next meeting on Jan. 23-24.
In a two-page policy statement, the bank repeated its medium-term economic outlook and risk analysis that it had presented in the Outlook Report issued at end of its previous meeting on Oct. 30-31:"Japan's economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions."
Board members also maintained their risk assessment, saying,"There remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior."
"Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the bank said, repeating its view in the October report."In particular, with firms' behavior shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices."
The BOJ is in the process of normalizing its policy by gradually lifting the rates from zero and slightly negative at every third or fourth meeting. The BOJ under Governor Ueda, who took office in April 2023, shifted gear in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework, following a decade of large monetary easing aimed at reflating the economy. The board stood pat in October and September and after voting 7 to 2 to hike the rate to the current level from a range of 0% to 0.1% in July.
The bank simply said in a statement released at 11:52 a.m. JST Friday (21:52 p.m. EST Thursday) that it"will continue to conduct monetary policy as appropriate," pursuing sustained price stability under its 2% inflation target. It didn't repeat its policy stance outlined in its quarterly Outlook Report for October, in which it said that given real interest rates are"at significantly low levels," the BOJ will"continue to raise the policy interest rate and adjust the degree of monetary accommodation" if economic growth and inflation evolve in line with its latest outlook.
Later, Governor Kazuo Ueda said in his opening remarks at a news conference that he and his colleagues agreed that while the bank's policy stance depends on incoming data,"given that real interest rates are at significantly low levels, if the aforementioned outlook for economic activity and prices will be realized, the bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation." The bank's outlook has not changed since the Oct.30-31 meeting: Gradual economic recovery will continue and inflation will be anchored around its 2% price stability target.
"As for the timing of adjusting the degree of monetary accommodation (i.e. unwinding excess stimulus), we need to make a judgement by carefully monitoring various data and information," Ueda said, adding that the bank needs"a little more information" on the momentum in annual wage talks between unions and management at large firms in the early parts of 2025 that will set the tone for overall base pay hikes in the new fiscal year that starts on April 1. The uncertainty over the incoming U.S. administration's economic policy"remains high."
Going into the Dec. 18-19 meeting, forecasters were almost equally divided over the possibility of a rate hike by 25 basis points between this week and at the bank's next meeting on Jan. 23-24.
In a two-page policy statement, the bank repeated its medium-term economic outlook and risk analysis that it had presented in the Outlook Report issued at end of its previous meeting on Oct. 30-31:"Japan's economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions."
Board members also maintained their risk assessment, saying,"There remain high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behavior."
"Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices," the bank said, repeating its view in the October report."In particular, with firms' behavior shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices."
The BOJ is in the process of normalizing its policy by gradually lifting the rates from zero and slightly negative at every third or fourth meeting. The BOJ under Governor Ueda, who took office in April 2023, shifted gear in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework, following a decade of large monetary easing aimed at reflating the economy. The board stood pat in October and September and after voting 7 to 2 to hike the rate to the current level from a range of 0% to 0.1% in July.
Market Consensus Before Announcement
The Bank of Japan is expected to raise its policy interest rate by another 25 basis points to 0.5% at its meeting on Dec. 18-19 or the next one on Jan. 23-24, and is likely to and lift it to around 1% by the end of 2025 or early 2026. This is part of the bank's policy normalization process that it launched in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework, following a decade of large-scale monetary easing aimed at reflating the economy.
Some market participants expect the bank to wait until the Jan. 23-24 meeting, but there is no compelling reason for the bank to delay its rate hike decision as domestic and global uncertainties, which have been heightened by U.S. President-elect Donald Trump's threat to impose 25% tariff on imports from Canada and Mexico, are unlikely to fade anytime soon. The BOJ is not in a hurry to raise rates, either.
At its last meeting on Oct. 30-31, the BOJ's nine-member board decided in a unanimous vote to maintain the target for the overnight interest rate at 0.25%, as widely expected, after leaving it steady in September and voting 7 to 2 to hike the rate to the current level from a range of 0% to 0.1% in July.
Noting that real interest rates are"at significantly low levels," the BOJ said it will"continue to raise the policy interest rate and adjust the degree of monetary accommodation" if economic growth and inflation evolve in line with its latest outlook. Japan's economic growth slowed to 0.3% on quarter, or an annualized 1.2%, in the July-September period from an unrevised 0.5% q/q (2.2% annualized) in April-June in revised Q3 GDP data, which showed the growth rate was slightly higher than the initial reading of +0.2% (+0.9% annualized) released last month.
The bank's quarterly Tankan business survey released on Dec. 13 showed that confidence among manufacturers was flat with a faintly brighter tone in the December quarter, led by a sharp improvement for oil refineries and thanks to strong global demand for semiconductor-producing equipment and other machinery. While near-term inflation expectations are anchored around the BOJ's 2% price stability target, many firms polled in the Tankan continue to project a slight downward pressure in general prices (as opposed to just business costs) in the longer term, indication that the pace of high wage hikes may lose some steam and a spike in the prices for food, energy and other necessities are set to ease off.
Some market participants expect the bank to wait until the Jan. 23-24 meeting, but there is no compelling reason for the bank to delay its rate hike decision as domestic and global uncertainties, which have been heightened by U.S. President-elect Donald Trump's threat to impose 25% tariff on imports from Canada and Mexico, are unlikely to fade anytime soon. The BOJ is not in a hurry to raise rates, either.
At its last meeting on Oct. 30-31, the BOJ's nine-member board decided in a unanimous vote to maintain the target for the overnight interest rate at 0.25%, as widely expected, after leaving it steady in September and voting 7 to 2 to hike the rate to the current level from a range of 0% to 0.1% in July.
Noting that real interest rates are"at significantly low levels," the BOJ said it will"continue to raise the policy interest rate and adjust the degree of monetary accommodation" if economic growth and inflation evolve in line with its latest outlook. Japan's economic growth slowed to 0.3% on quarter, or an annualized 1.2%, in the July-September period from an unrevised 0.5% q/q (2.2% annualized) in April-June in revised Q3 GDP data, which showed the growth rate was slightly higher than the initial reading of +0.2% (+0.9% annualized) released last month.
The bank's quarterly Tankan business survey released on Dec. 13 showed that confidence among manufacturers was flat with a faintly brighter tone in the December quarter, led by a sharp improvement for oil refineries and thanks to strong global demand for semiconductor-producing equipment and other machinery. While near-term inflation expectations are anchored around the BOJ's 2% price stability target, many firms polled in the Tankan continue to project a slight downward pressure in general prices (as opposed to just business costs) in the longer term, indication that the pace of high wage hikes may lose some steam and a spike in the prices for food, energy and other necessities are set to ease off.
Definition
The Bank of Japan is the central bank of Japan. The Bank of Japan Act states that the bank's monetary policy should be aimed at"achieving price stability, thereby contributing to the sound development of the national economy." The nine-member policy board reviews economic conditions at home and abroad before making a policy decision. There is no specific time for the announcement. The board holds eight two-day Monetary Policy Meetings a year, in January, March, April, June, July, September, October and December. At each meeting, the board votes on the proposals on the bank’s monetary policy stance and the basic guideline on how to achieve the policy target submitted by the chair of the board, who is the bank governor.
Description
The announcement of the bank’s monetary policy decision after each meeting can cause a market reaction, even when there is no change to the policy stance. Markets tend to look ahead toward a policy shift, pricing in a change to the bank’s targets for overnight and long-term interest rates, the pace of financial asset purchases or the scale of market operations.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
Market participants closely monitor the news conference by the BoJ governor that usually starts at 1530 JST (0130 EST/0230 EDT/0630 GMT), a few hours after the bank releases its policy decision. Comments from the governor could provide clues to what the bank may or may not do in the near term, which in turn could trigger buying or selling of the yen against the dollar.
Since April 2023, the bank has been conducting a"broad-perspective review" of the costs and benefits of its various monetary easing measures implemented in the past 25 years. The negative overnight interest rate target introduced in January 2016 has been unpopular among lenders as it squeezes their profit margins.
