The Bank of Japan decided to keep its key interest rates steady for the third consecutive session on Thursday, as it waits for more insight from spring wage negotiations amid heightened uncertainty regarding U.S. government policies.
During the policy board meeting, members voted 8-1 to maintain the uncollateralized overnight call rate at approximately 0.25 percent — a level not seen since late 2008. The BoJ abandoned its negative interest rate policy in March and last raised the interest rate to 0.25 percent in July. This marks the second policy tightening by the BoJ this year.
Board member Tamura Naoki advocated for a 50 basis point increase, citing that with economic activity and price levels aligning with the Bank's projections, the risks to prices have become more inclined towards the upside.
Governor Kazuo Ueda indicated that the Bank would need to carefully review various data before deciding on any policy easing measures.
According to Marcel Thieliant, an economist at Capital Economics, the Bank is anticipated to increase its rates by 25 basis points at the next meeting in January, projecting rates to reach 1.25 percent by the end of 2026. This expectation is slightly higher than the consensus forecast of a 1.00 percent peak.
In November, core inflation surpassed the 2 percent target yet slightly decreased from 2.4 percent to 2.3 percent.
The economist from Capital Economics noted that the forthcoming Shunto wage talks would likely lead to another significant wage rise, thereby maintaining momentum in services inflation in the near future.
The board emphasized the importance of closely monitoring developments in financial and foreign exchange markets and their implications on Japan's economy and pricing.
"In particular, with firms increasingly focusing on wage and price hikes lately, exchange rate movements are, compared to the past, more likely to influence prices," noted the bank.
Separately, a policy review published on Tuesday disclosed that unconventional measures, including extensive monetary easing, carry their own side effects and limitations. "The Bank should not rule out any particular measures when considering future monetary policy actions," the BoJ stated.
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