The headquarters of the Bank of Japan (BOJ) behind the cherry blossoms in Tokyo on March 20, 2023.
Kazuhiro Noji | AFP | Getty Images
The Bank of Japan on Thursday kept its benchmark interest rate steady at 0.25%, choosing to take time to assess the impact of financial and foreign exchange markets on economic activity and prices in Japan.
the yen The euro fell 0.3% against the dollar after the interest rate decision, trading at 155.42, reaching its lowest level in one month. Meanwhile, the country's stock indices trimmed their gains, with the index Nikki 225 A decrease of 0.74% compared to a loss of 0.96% before the announcement.
The decision to hold interest rates surprised economists polled by Reuters who expected a 25 basis point hike. In the United States, the US Federal Reserve on Wednesday cut interest rates by 25 basis points, bringing the federal funds rate to 4.25%-4.5%.
The Bank of Japan said in its statement that the suspension decision was a split decision of 8-1, with board member Naoki Tamura calling for a 25 basis point hike.
However, the central bank noted that “significant uncertainties remain surrounding economic activity and prices in Japan.”
“In particular, with corporate behavior shifting more towards higher wages and prices recently, exchange rate developments, compared to the past, are likely to impact prices,” the bank added.
The Bank of Japan's decision was consistent with a CNBC poll, which showed that 13 out of 24 economists expect the Bank of Japan to keep its key interest rate unchanged in December before raising interest rates at the next meeting in January.
The survey was conducted Dec. 9-13, before the Fed signaled there would be fewer interest rate cuts in 2025.
The economy is still holding up
The latest economic data from Japan still currently supports the idea of a rate hike. Headline inflation in October reached 2.3%, marking the 30th straight month in which inflation exceeded the Bank of Japan's 2% target. November inflation data will be released on Friday.
Business sentiment among Japan's major companies was also higher than expected in the Bank of Japan's latest Tankan survey, with the index of major manufacturing companies rising to 14 in the December quarter, up from 13 in the September quarter and above the 12 expected from economists. Reuters polled his opinions.
The index tracks the country's business sentiment among major companies and contributes to the Bank of Japan's considerations when shaping monetary policy. A higher number means that the number of optimists outnumbers the number of pessimists, and vice versa.
In a note dated December 13, analysts from Bank of America said that the December Tankan survey indicates that the Japanese economy remains resilient.
“This also confirms that the economy and inflation are trending in line with the BOJ's base case scenario (its primary condition for raising interest rates),” they added.
However, this does not mean that the need to raise interest rates has become urgent. Imported inflationary pressures are easing, while medium-term corporate inflation expectations remain stable despite the imminent start of President-elect Donald Trump's administration and trade tariff risks, analysts said.
