| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Change | 0bp | 0bp to 0bp | 0bp | 25bp |
| Level | 0.5% | 0.5% to 0.5% | 0.5% | 0.5% |
Highlights
The Bank of Japan's nine-member board voted unanimously to maintain the target for overnight interest rate at 0.5%, as widely expected, after voting 8 to 1 to raise the policy rate by another 25 basis points to 0.5% in January in a third rate hike during the current normalization process that began in March 2024. Members are closely monitoring whether expected high wage increases by major firms will spread to smaller firms in fiscal 2025 starting on April 1 at a time when real wages are falling, which could hurt consumption further and generate deflationary pressures.
The board continues to expects its inflation to be anchored around its 2% target by early 2026, saying, In the second half of the projection period (from fiscal 2024 through fiscal 2026 ending March 2027), underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target.
Governor Kazuo Ueda told a news conference on Wednesday that he will keep in mind heightened upside risks to inflation warned about by some BOJ board members at the latest two-day meeting among other things when he formulates monetary policy. The underlying inflation is estimated to be still under 2%, the governor said. To put it simply, the price increase in service prices is not so strong, he said, underscoring the slow progress in lifting regulated wages as well as underpaid workers at restaurants and tourism. Ueda said the BOJ would not raise its policy rate just to contain a spike in the prices of rice in the aftermath of acute domestic supply shortages because that would cool off consumption.
The board also maintained its view that it provided in the bank's quarterly Outlook Report issued in January: 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 warned that high uncertainties over Japan's economic outlook remain. Risk factors include the impact of the protectionist U.S. trade policy and retaliation by other countries on global growth and inflation, commodity prices and domestic firms' wage- and price-setting behavior.
The BOJ is on course for two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process after more than a decade of large-scale easing.
The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until a year ago. 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 December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.
The board continues to expects its inflation to be anchored around its 2% target by early 2026, saying, In the second half of the projection period (from fiscal 2024 through fiscal 2026 ending March 2027), underlying CPI inflation is likely to be at a level that is generally consistent with the price stability target.
Governor Kazuo Ueda told a news conference on Wednesday that he will keep in mind heightened upside risks to inflation warned about by some BOJ board members at the latest two-day meeting among other things when he formulates monetary policy. The underlying inflation is estimated to be still under 2%, the governor said. To put it simply, the price increase in service prices is not so strong, he said, underscoring the slow progress in lifting regulated wages as well as underpaid workers at restaurants and tourism. Ueda said the BOJ would not raise its policy rate just to contain a spike in the prices of rice in the aftermath of acute domestic supply shortages because that would cool off consumption.
The board also maintained its view that it provided in the bank's quarterly Outlook Report issued in January: 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 warned that high uncertainties over Japan's economic outlook remain. Risk factors include the impact of the protectionist U.S. trade policy and retaliation by other countries on global growth and inflation, commodity prices and domestic firms' wage- and price-setting behavior.
The BOJ is on course for two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process after more than a decade of large-scale easing.
The bank is in the process of normalizing its policy by gradually lifting the rates that had been in a range of zero and slightly negative until a year ago. 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 December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.
Market Consensus Before Announcement
The Bank of Japan's nine-member board is widely expected to stand pat for now to monitor the effects of its last rate hike conducted in January when it voted 8 to 1 to raise the policy interest rate by another 25 basis points to 0.5% in a third rate hike during the current normalization process begun in March 2024. Members are also closely watching whether expected high wage increases by major firms will spread to smaller firms in fiscal 2025 starting on April 1.
Board member Toyoaki Nakamura, a former Hitachi executive, voted against the rate hike at this point, giving the same reason that he did in July: It would be better to wait until next meeting, in March, and confirm whether firms' ability to earn profits are rising.
The board expects inflation to be anchored around its 2% target by early 2026. It is on course for two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process after more than a decade of large-scale easing.The BOJ is in the process of normalizing its policy by gradually lifting the rates from zero and slightly negative. 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 December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.
Board member Toyoaki Nakamura, a former Hitachi executive, voted against the rate hike at this point, giving the same reason that he did in July: It would be better to wait until next meeting, in March, and confirm whether firms' ability to earn profits are rising.
The board expects inflation to be anchored around its 2% target by early 2026. It is on course for two more 25 basis point rate hikes that would take the overnight interest rate target to 1% by late 2025 or early 2026 as part of its gradual normalization process after more than a decade of large-scale easing.The BOJ is in the process of normalizing its policy by gradually lifting the rates from zero and slightly negative. 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 December, October and September after voting 7 to 2 in July to hike the rate to 0.25% from a range of 0% to 0.1%.
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.
