| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Change | 25bp | 25bp to 25bp | 25bp | 0bp |
| Level | 0.75% | 0.75% to 0.75% | 0.75% | 0.5% |
Highlights
The Bank of Japan's nine-member board, as widely expected, decided unanimously to raise the target for the overnight interest rate by 25 basis points (0.25%age point) to a 30-year high of 0.75%, effective Monday, pointing to lingering but reduced uncertainties over U.S. trade rows and growing expectations that firms will continue raising wages into fiscal 2026 staring in April.
The bank repeated its mantra that it will continue raising rates if growth and inflation evolve in line with its medium-term outlook but it is still in the process of normalizing its monetary policy stance from years of keeping short-term rates near zero percent.
BOJ Governor Kazuo Ueda told a news conference that the board will discuss the need to raise rates further, taking"one meeting at a time" and that its policy decisions will be 'data- and information-dependent." After today's action, the short-term rate at 0.75% is"still slightly below the lower end of the estimated neutral rate," he said, referring to the evasive measure often described as a moving target that is neither too stimulative nor too restrictive to economic activity.
The board stressed that real interest rates remain significantly negative after the rate hike, and thus accommodative monetary conditions will continue and support economic activities.
The bank said in a statement that it took action at this point, judging from anecdotal evidence that prices and wage are highly likely to rise moderately together in a positive cycle that it has been pushing to bring about by providing super-low borrowing costs for households and businesses. Firms are highly likely to continue raising wages next year and the risk of this move faltering seems to be low, the bank noted.
It is the bank's first rate hike since January, when it lifted the policy rate by 25 basis points to 0.5% in an 8 to 1 vote amid increasing signs that major firms would maintain substantial wage hikes into fiscal 2025. It is also the fourth increase during the current normalization process that began in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework.
Days before the Dec. 18-19 meeting, Governor Ueda said the uncertainty over the protectionist U.S. trade policy had eased and that he was looking for early signs that many firms plan to continue raising wages at a solid pace into fiscal 2026.
Three days before the meeting, the bank released the results of a quick survey that showed a majority of companies plan to maintain the existing relatively high pace of wage hikes into fiscal 2026 starting in April in order to address widespread labor shortages. Combined with improving business confidence found in the December quarter Tankan survey issued by the bank also on Monday, the BOJ gained sufficient evidence to justify an interest rate hike on Friday, which officials have repeatedly said would be an adjustment of super-low rate to more normal levels and thus would not choke off economic activity.
The board will update their growth and inflation projections in its quarterly Outlook Report due after the Jan. 22-23 meeting. It is likely to leave their forecasts little changed from the October outlook: Tepid GDP growth of 0.7% for both fiscal 2025 and 2026 and 1.0% for fiscal 2027; core CPI (excluding fresh food) 2.7% in fiscal 2025, 1.8% in fiscal 2026 and 2.0% in fiscal 2027.
Data released earlier in the day showed that Japan's consumer inflation was slightly easier to stable at around 3.0% on the year in November, staying well above the BOJ's 2% price stability target in the long run.
The bank repeated its mantra that it will continue raising rates if growth and inflation evolve in line with its medium-term outlook but it is still in the process of normalizing its monetary policy stance from years of keeping short-term rates near zero percent.
BOJ Governor Kazuo Ueda told a news conference that the board will discuss the need to raise rates further, taking"one meeting at a time" and that its policy decisions will be 'data- and information-dependent." After today's action, the short-term rate at 0.75% is"still slightly below the lower end of the estimated neutral rate," he said, referring to the evasive measure often described as a moving target that is neither too stimulative nor too restrictive to economic activity.
The board stressed that real interest rates remain significantly negative after the rate hike, and thus accommodative monetary conditions will continue and support economic activities.
The bank said in a statement that it took action at this point, judging from anecdotal evidence that prices and wage are highly likely to rise moderately together in a positive cycle that it has been pushing to bring about by providing super-low borrowing costs for households and businesses. Firms are highly likely to continue raising wages next year and the risk of this move faltering seems to be low, the bank noted.
It is the bank's first rate hike since January, when it lifted the policy rate by 25 basis points to 0.5% in an 8 to 1 vote amid increasing signs that major firms would maintain substantial wage hikes into fiscal 2025. It is also the fourth increase during the current normalization process that began in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework.
Days before the Dec. 18-19 meeting, Governor Ueda said the uncertainty over the protectionist U.S. trade policy had eased and that he was looking for early signs that many firms plan to continue raising wages at a solid pace into fiscal 2026.
Three days before the meeting, the bank released the results of a quick survey that showed a majority of companies plan to maintain the existing relatively high pace of wage hikes into fiscal 2026 starting in April in order to address widespread labor shortages. Combined with improving business confidence found in the December quarter Tankan survey issued by the bank also on Monday, the BOJ gained sufficient evidence to justify an interest rate hike on Friday, which officials have repeatedly said would be an adjustment of super-low rate to more normal levels and thus would not choke off economic activity.
The board will update their growth and inflation projections in its quarterly Outlook Report due after the Jan. 22-23 meeting. It is likely to leave their forecasts little changed from the October outlook: Tepid GDP growth of 0.7% for both fiscal 2025 and 2026 and 1.0% for fiscal 2027; core CPI (excluding fresh food) 2.7% in fiscal 2025, 1.8% in fiscal 2026 and 2.0% in fiscal 2027.
Data released earlier in the day showed that Japan's consumer inflation was slightly easier to stable at around 3.0% on the year in November, staying well above the BOJ's 2% price stability target in the long run.
Market Consensus Before Announcement
At its Dec. 18-19 meeting, the Bank of Japan’s nine-member board is expected to decide either unanimously or in a majority vote to raise the target for the overnight interest rate by 25 basis points (0.25 percentage point) to 0.75% after standing pat in the previous six meetings, encouraged by reduced uncertainty over how the protectionist U.S. trade policy will hurt global and domestic growth and by early signs that many firms plan to continue raising wages at a solid pace into fiscal 2026.
It would be the bank’s first rate hike since January, when it lifted the policy rate by 25 basis points to 0.5% in an 8 to 1 vote amid increasing signs that major firms would maintain substantial wage hikes into fiscal 2025. It would also be its fourth increase during the current normalization process that began in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework in a 7 to 2 vote. In July 2024, the board voted 7 to 2 to hike the policy rate to 0.25% from a range of 0% to 0.1%.
Less than two weeks to the December meeting, Governor Kazuo Ueda on Dec. 1 dropped a clear hint that the board is ready to make another gradual step toward normalizing the bank’s monetary policy that is still deemed supportive to economic activity. “At the meeting, we will examine and discuss economic activity and prices at home and abroad as well as developments in financial and capital markets…and will consider the pros and cons of raising the policy interest rate and make decisions as appropriate,” he told business leaders in Nagoya, a central Japan manufacturing and commercial hub. He also said “there is a growing view that the impact of tariff policies on corporate profits will be limited. Considering these factors among others, it appears that the uncertainty surrounding the outlook for Japan’s economy is gradually diminishing.”
Ueda stressed the importance of “confirming the initial momentum” toward continued solid wage hikes in fiscal 2026 starting on April 1. Major firms settle annual wage talks with unions from early to mid-March but early indications of the pace of wage growth tend to emerge from November to January.
The governor noted that corporate profits are expected to remain high despite the drag from stiff U.S. tariffs, the Japanese Trade Union Confederation is demanding wage growth at 5% or more (3% in base wages and 2% in seniority-based pay) – the same rate targeted for fiscal 2025 – and the Japan Business Federation is also calling for “further anchoring” of raising wages. BOJ official at the bank’s head office and branches are “actively” gleaning anecdotal evidence on how firms are planning to raise wages, the governor said.
Later at a news conference, Ueda was asked whether the bank’s policymakers would have to wait until the next quarterly meeting of BOJ branch managers in mid-January. The BOJ’s last rate hike, the third in the current cycle of unwinding large-scale easing, was conducted at its Jan. 23-24 meeting following the regional economic reports presented by branch managers at their Jan. 9 meeting.
“We do get reports at the January branch managers’ meeting, or I should say we always get those at regular branch managers’ meetings,” the governor replied. “However, at this particular point, the information or key points we especially wish to confirm are whether the mechanism of wages and prices rising gradually together will continue. The core of this at this stage is the movement toward next spring’s wage negotiations, and we are actively conducting special interviews and surveys regarding this issue.”
It would be the bank’s first rate hike since January, when it lifted the policy rate by 25 basis points to 0.5% in an 8 to 1 vote amid increasing signs that major firms would maintain substantial wage hikes into fiscal 2025. It would also be its fourth increase during the current normalization process that began in March 2024 with its first rate hike in 17 years and an end to the seven-year-old yield curve control framework in a 7 to 2 vote. In July 2024, the board voted 7 to 2 to hike the policy rate to 0.25% from a range of 0% to 0.1%.
Less than two weeks to the December meeting, Governor Kazuo Ueda on Dec. 1 dropped a clear hint that the board is ready to make another gradual step toward normalizing the bank’s monetary policy that is still deemed supportive to economic activity. “At the meeting, we will examine and discuss economic activity and prices at home and abroad as well as developments in financial and capital markets…and will consider the pros and cons of raising the policy interest rate and make decisions as appropriate,” he told business leaders in Nagoya, a central Japan manufacturing and commercial hub. He also said “there is a growing view that the impact of tariff policies on corporate profits will be limited. Considering these factors among others, it appears that the uncertainty surrounding the outlook for Japan’s economy is gradually diminishing.”
Ueda stressed the importance of “confirming the initial momentum” toward continued solid wage hikes in fiscal 2026 starting on April 1. Major firms settle annual wage talks with unions from early to mid-March but early indications of the pace of wage growth tend to emerge from November to January.
The governor noted that corporate profits are expected to remain high despite the drag from stiff U.S. tariffs, the Japanese Trade Union Confederation is demanding wage growth at 5% or more (3% in base wages and 2% in seniority-based pay) – the same rate targeted for fiscal 2025 – and the Japan Business Federation is also calling for “further anchoring” of raising wages. BOJ official at the bank’s head office and branches are “actively” gleaning anecdotal evidence on how firms are planning to raise wages, the governor said.
Later at a news conference, Ueda was asked whether the bank’s policymakers would have to wait until the next quarterly meeting of BOJ branch managers in mid-January. The BOJ’s last rate hike, the third in the current cycle of unwinding large-scale easing, was conducted at its Jan. 23-24 meeting following the regional economic reports presented by branch managers at their Jan. 9 meeting.
“We do get reports at the January branch managers’ meeting, or I should say we always get those at regular branch managers’ meetings,” the governor replied. “However, at this particular point, the information or key points we especially wish to confirm are whether the mechanism of wages and prices rising gradually together will continue. The core of this at this stage is the movement toward next spring’s wage negotiations, and we are actively conducting special interviews and surveys regarding this issue.”
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.
