On Friday, the Bank of Japan (BOJ) increased its key policy rate by 25 basis points to 0.5%, marking its first rate hike since 2008. This move signals a shift toward monetary policy normalization as the domestic economy shows signs of improvement.
Key Highlights:
The decision passed with an 8-1 vote, with Toyoaki Nakamura opposing the hike.
The policy rate is now at its highest point since 2008.
The BOJ hinted at the possibility of gradual rate increases through 2025.
Wage negotiations remain a key factor in determining future policy actions.
This rate hike follows substantial intervention in the currency markets last year, with Japanese authorities spending over 15.32 trillion yen to stabilize the currency. However, with the yen weakening, officials have become more focused on monetary policy normalization rather than direct currency intervention.
Toyoaki Nakamura was the lone dissenting vote, arguing that the central bank should only alter its money market operations once it confirms a rise in corporate earnings.
Link to Official Bank of Japan Monetary Policy Decision (January 2025)
In its policy statement, the BOJ also released an updated Monetary Policy Outlook, with revised growth and inflation forecasts:
The median core CPI forecast for fiscal 2025 is +2.4%, up from +1.9% in October.
The core CPI forecast for next year is +2.0%, up from +1.9% in October.
During the press conference, Governor Ueda emphasized that future policy moves would be more driven by price pressures than economic growth. He noted that while the risk of deflation remains, real wages are expected to turn positive following the upcoming “shunto” wage negotiations.
The Japanese yen, which had been slightly weaker after recent CPI figures, strengthened after the BOJ’s “hawkish” rate hike announcement. USD/JPY fell 0.3% to 155.61, and the yen rallied against most major currencies before giving back some of the gains. The yen held its ground against the Swiss franc (0.17%) and the British pound (0.12%) but lost some ground against the Aussie (-0.11%) and Kiwi (-0.21%) after the press conference.
