BOJ Likely to Stay Put Now, Assessing Impact of Last Rate Hike
Bank of Japan is likely to keep its policy interest rate unchanged for now as it puts weight on assessing the impact on the economy and prices of its last rate hike in December 2025.
The central bank decided to keep its monetary policy unchanged at its latest policy-setting meeting through Friday (January 23), after raising its target for the unsecured overnight call rate, a key short-term interbank rate, by 25 basis points to around 0.75 per cent at last month's meeting.
Some market players believe the BOJ will hike the policy rate as early as this spring, possibly in April, to curb the weakening of the yen.
With the BOJ not willing to show its hand, the bank is expected to be in a staredown with market players regarding the timing of its next policy change.
At Friday's press conference held after the latest policy meeting, BOJ Governor Kazuo Ueda indicated that the bank will assess a wide array of data to decide when to alter its policy.
"Now is the time for us to examine, from various indicators, at what pace inflation and wage increases will continue," he said.
The yen fell to slip past 159 against the dollar during the press conference, because the central bank chief did not comment on the possibility of a policy change being carried out earlier than planned, and investors perceived him to be cautious about further rate hikes.
Japan's House of Representatives, the all-important lower chamber of parliament, was dissolved on Friday, at the start of this year's ordinary parliamentary session, and a subsequent general election has been set for February 8.
Both ruling and opposition parties advocate reducing the consumption tax on food to zero, sparking concerns that the yen may depreciate further due to a decline in the country's fiscal health.
This is feared to accelerate price increases for imported goods, which would further boost inflation.
Ueda said he does not believe the BOJ is acting too slowly in raising interest rates.
Most market players expect the central bank to increase rates at a pace of once about every six months, but an official at a Japanese securities firm said that a rate hike may be "carried out earlier depending on the yen's moves."
[Copyright The Jiji Press, Ltd.]
