Bank of Japan Maintains 0.25% Rate as Yen Weakens

The Bank of Japan (BOJ) has opted to keep its benchmark interest rate unchanged at 0.25%. This decision aligns closely with recent movements in global markets, particularly following the U.S. Federal Reserve's announcement to cut its rates by 25 basis points, lowering the federal funds rate to a range of 4.25% to 4.5%.

Immediately after the announcement, the yen weakened by 0.16% against the dollar, trading around 155.06 yen per dollar. The BOJ indicated that this decision to hold interest rates was not unanimous; it was made with an 8-1 vote, with board member Naoki Tamura advocating for a 25-basis-point increase.

In its statement, the Bank acknowledged the high levels of uncertainty regarding Japan's economic activities and price levels. Consequently, they emphasized the importance of closely monitoring financial and foreign exchange market developments and their subsequent implications for Japan’s economic environment and overall prices.

The BOJ highlighted that firms have been increasingly inclined to raise wages and prices in recent months. These shifts in corporate behavior suggest that currency exchange rates could have a more direct impact on prices than in the past.

This decision was anticipated by many in the economic community. A recent poll conducted by CNBC revealed that 13 out of 24 economists expected the BOJ to maintain its interest rate in December, with potential increases projected for the following month. The survey was conducted prior to the Fed’s indications of fewer rate cuts anticipated in 2025.

In analysis, a note from Citi released on December 13 predicted that the BOJ will implement three rate hikes in 2025, potentially bringing the interest rate up to 1%. Investors and analysts alike will continue to watch closely how domestic and international economic conditions evolve as they may impact future monetary policy decisions.

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Bank, Japan, Interest