The Bank of Japan (BOJ) has decided to hold its benchmark interest rate steady at 0.25%, surprising economists who had expected a 25-basis-point hike. The decision was made despite growing concerns about inflation and economic activity, with the yen weakening by 1.27% against the dollar.
The BOJ cited uncertainty surrounding Japan’s economic activity and prices as reasons for maintaining rates steady. However, BOJ Governor Kazuo Ueda noted that if the bank waits too long to raise rates, it may need to quicken rate hikes in future meetings to prevent inflation from rising too high.
In contrast, U.S. Federal Reserve officials have been cutting interest rates, with the federal funds rate now ranging from 4.25% to 4.5%. The BOJ’s decision has raised concerns about the potential for Japan to fall behind other developed economies in terms of monetary policy response.
Analysts at investment bank Credit Agricole Securities Asia believe that the BOJ’s decision was due to opposition from the government, which is growing concerns that real GDP growth would be negative in 2024. The next BOJ meeting is set to take place on January 24, just after U.S. President-elect Donald Trump takes office.
Despite these challenges, recent economic data from Japan suggests that the economy remains resilient. Headline inflation has crossed the BOJ’s 2% target for 30 straight months, and business sentiment among large companies in Japan is higher than expected. However, analysts at Bank of America note that imported inflationary pressure is receding, and companies’ medium-term inflation expectations remain stable despite the start of Trump’s administration.
The BOJ has stated that it will resume its tightening cycle “before long,” with many economists expecting a rate hike in January after new economic forecasts come in.
Source: https://www.cnbc.com/2024/12/19/bank-of-japan-holds-rates-at-0point25percent.html