Important takeaways
- The Bank of Japan kept interest rates at 0.25% for the third meeting in a row.
- Unchanged interest rates reflect close monitoring of domestic wage developments and US economic policy.
The Bank of Japan (BOJ) kept interest rates unchanged at 0.25% at its Thursday meeting (local time), marking the third consecutive hold after similar decisions in September and October.
The choice to keep interest rates at current levels was somewhat anticipated. A recent one Report from CNBC showed that a narrow majority of economists predicted the BoJ would keep interest rates unchanged at the end of the December 19 meeting, although many anticipate a possible rate hike in January based on economic indicators.
The BOJ’s decision comes as the US Fed cut its benchmark rates by 25 basis points on Wednesday, marking its third rate cut since the start of the Covid-19 pandemic over four years ago. Despite cutting interest rates, the Fed struck a more hawkish tone than expected. Fed Chairman Jerome Powell emphasized that future rate cuts would be more deliberate against a backdrop of persistent inflation and economic uncertainty.
The BOJ’s stance reflects its careful approach as it monitors domestic wage growth, spending patterns and potential policy changes under the incoming Trump administration.
Regular wages in Japan have grown at an annual rate of 2.5% to 3%, pushing inflation above the BoJ’s 2% target for more than two years. However, the recent declines in household spending have contributed to the bank’s cautious approach to interest rate increases.
The BoJ last raised interest rates in July and has indicated a willingness to tighten further if wage growth meets expectations. The central bank is also weighing external factors, particularly the impact of US economic policies under Trump, which could affect Japan’s economic outlook.
Market expectations for an interest rate hike in December have decreased following recent media reports. Analysts suggest the BoJ may wait for results from upcoming wage negotiations in early 2025 before adjusting monetary policy.
This is a development story.
