BOJ Stands Pat as Ueda Bides Time Until Next Rate Hike
The Bank of Japan kept its monetary policy settings steady, signaling it sees little urgency to raise interest rates for now given ongoing uncertainties and little chance that inflation will overshoot.
Governor Kazuo Ueda’s policy board left its benchmark rate at around 0.25%, according to a statement Thursday, an outcome expected by more than half of economists surveyed by Bloomberg.
The bank indicated the economy is moving in line with its expectations, a prerequisite for a rate hike, by reiterating that the inflation trend appears to be consistent with its target for the second half of its outlook period.
Board member Naoki Tamura voted against the stand-pat decision, and proposed a rate hike to 0.5% at this gathering. This was the first proposal against keeping borrowing costs steady after Ueda took the BOJ’s helm in April last year.
The yen weakened against the dollar immediately after the policy statement was released.
Ueda is searching for the right moment for his third rate increase, with recent economic indicators showing inflation is moving in line with the BOJ’s projections. While January has become the most popular timing for the next hike among market participants, the vote against holding rates is likely to keep expectations high for a move next month.
The central bank may also have been reluctant to raise rates in December given the potential for bad optics. Prime Minister Shigeru Ishiba’s minority government is currently negotiating with an opposition party wary of early rate hikes to ensure support for next year’s annual budget. Those negotiations are expected to wrap up in the coming days.
Source: Bloomberg
