Recapping the Bank of Japan monetary policy decision today – rates unchanged again

The posts from earlier are here:

• Bank of Japan leaves rates unchanged, as expected
• Bank of Japan comprehensive review on past monetary easing steps
• USD/JPY jumps above 155.20 after BoJ votes 8 – 1 to leave rates unchanged again

But if you want a quickie rundown:

• Interest Rates Held Steady: The BOJ kept its short-term policy rate unchanged at 0.25%, with an 8-1 vote among its board members.

• Dissenting Vote: Board member Naoki Tamura, a policy hawk, proposed raising rates to 0.5%, citing rising inflationary risks. His proposal was voted down.

• Future Rate Hikes Expected: Markets anticipate the BOJ will raise rates early in 2025, with most expecting a hike to 0.5% by March.

• Economic Conditions:

  • Japan’s economy is recovering moderately, with some weaknesses.
  • Consumption is increasing, but uncertainty around U.S. policies and slowing demand in China could weigh on growth.
  • Annualized GDP growth slowed to 1.2% in Q3, with consumption rising a modest 0.7%.

• Inflation Trends:

  • Core inflation has fallen from a peak of 4.2% in January 2023 to 2.3% in October.
  • Wage growth, currently at 2.5%-3%, is expected to continue amid labor shortages, supporting the BOJ’s gradual rate hike strategy.

• Market Reaction:

  • The yen initially fell to a one-month low against the dollar before recovering slightly.
  • Investors are watching BOJ Governor Kazuo Ueda’s press conference for clues on the timing of the next rate hike.

• Background:

  • The BOJ ended negative interest rates in March 2024 and raised its policy target to 0.25% in July.
  • Future hikes depend on wage growth and inflation aligning with the BOJ’s projections.

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Next up we will have the press conference from Bank of Japan Governor Ueda. This is due at 0630 GMT (0130 US Eastern time) and I expect Ueda to sound a hawkish note or two.

USD/JPY update:

This article was written by Eamonn Sheridan at www.forexlive.com.