The Bank of Japan passed the interest rate decision with a result of 8 to 1, keeping the interest rate unchanged at 0.25%, marking the third consecutive pause in raising rates.
On December 19th, the Bank of Japan maintained the policy interest rate at 0.25%, marking the third consecutive pause on interest rate hikes. Following the announcement, $USD/JPY (USDJPY.FX)$ the Exchange Rates surged in the short term.
Full text of the interest rate decision
1. At today's monetary policy meeting, the Bank of Japan's policy committee decided, with a majority vote of 8 in favor and 1 against, to set the following guidelines for monetary market operations during the meeting:
The Bank of Japan will encourage the uncollateralized overnight call rate to remain around 0.25%.
2. Despite some signs of weakness to a certain extent, the Japanese economy has moderately recovered. The overseas economy is generally maintaining moderate growth. Exports and industrial production are basically flat. Corporate profits show an improving trend, and business confidence remains at a good level. In this context, corporate fixed asset investment has been following a trend of moderate growth. The employment and income situation has moderately improved.
Despite the impact of rising prices and other factors, private consumption continues to show a moderate growth trend. Real Estate Investment has been relatively weak. Public investment has remained flat. The financial environment has been consistently accommodative.
In terms of prices, the year-on-year growth rate of the Consumer Price Index (CPI, excluding fresh food) has recently been between 2.0-2.5%, as service prices continue to rise moderately, reflecting factors such as wage increases. However, the past effects of rising import prices which led to increased costs being passed on to consumer prices have weakened. Inflation expectations have risen moderately.
As the overseas economy continues to grow moderately, along with factors such as accommodative financial conditions, the virtuous cycle from income to expenditure is gradually strengthening, making it likely that the Japanese economy will continue to grow at a pace above its potential growth rate.
Regarding the CPI (excluding fresh food), although the transmission effect of rising costs from past import price increases on consumer prices is expected to weaken, potential CPI inflation is expected to gradually increase because it is anticipated that the output gap will improve, and as the virtuous cycle between wages and prices continues to strengthen, medium- to long-term inflation expectations will rise.
In the second half of the forecast period for the October 2024 "Economic Activity and Price Outlook," potential CPI inflation may be at a level consistent with the overall price stability target. By the fiscal year 2025, the dissipation of the government's measures to curb inflation is expected to have a positive effect on the year-on-year growth of the CPI (excluding fresh food), while the decline in resource prices such as Crude Oil Product in the past will have a negative impact.
Regarding risks to the outlook, there remains significant uncertainty in Japan's economic activity and prices, including developments in overseas economic activity and prices, trends in CSI Commodity Equity Index prices, and domestic corporate wage and pricing behaviors. In this context, it is essential to pay appropriate attention to developments in the financial and Forex markets and their impact on Japan's economic activity and prices. In particular, with recent corporate behavior shifting more towards increasing wages and prices, exchange rate developments are more likely to affect prices compared to the past.
3. At this monetary policy meeting, the Bank of Japan completed the "comprehensive review of monetary policy" that has been underway since April 2023. In the assessment, the Bank of Japan examined the effects and side effects of unconventional monetary policy and, combining this with the developments in Japan's economic activity, prices, and financial conditions over the past 25 years, articulated the implications for future monetary policy actions.
While utilizing the results of the review, the Bank of Japan will continue to appropriately implement monetary policy based on the 2% price stability target, considering developments in economic activity, prices, and financial conditions, from the perspective of achieving the goal sustainably and stably.
Editor/Rocky