The Bank of Japan (BOJ) kept interest rates unchanged at 0.25% during its meeting on Thursday (local time), marking the third consecutive hold following similar decisions in September and October.
The option of maintaining interest rates at their current levels was somewhat foreseen. A recent CNBC report showed that a narrow majority of economists predicted the Bank of Japan would leave rates unchanged at the conclusion of its Dec. 19 meeting, although many forecast a possible rate hike in January based on economic indicators.
The BOJ’s decision comes as the US Federal Reserve cut its benchmark interest rates by 25 basis points on Wednesday, marking its third rate cut since the start of the COVID-19 pandemic more than four years ago. Despite cutting rates, the Federal Reserve took a more hawkish tone than expected. Federal Reserve Chair Jerome Powell stressed that future rate cuts would be more deliberate in light of persistent inflation and economic uncertainties.
The BOJ’s stance reflects its careful approach in monitoring domestic wage growth, spending patterns and potential policy changes under the incoming Trump administration.
Regular wages in Japan have been rising at an annual rate of 2.5% to 3%, pushing inflation above the Bank of Japan’s 2% target for more than two years. However, recent declines in household spending have contributed to the bank’s cautious approach to rate hikes.
The Bank of Japan last raised rates in July and has indicated its willingness to tighten rates further if wage growth meets expectations. The central bank is also weighing external factors, particularly the impact of US economic policies under Trump, that could affect Japan’s economic prospects.
Market expectations for a rate hike in December have diminished following recent media reports. Analysts indicate that the Bank of Japan could wait for the results of the next wage negotiations in early 2025 before adjusting monetary policy.
