Bank of Japan Governor Kazuo Ueda answers questions during the International Monetary Fund (IMF) and governors’ speech on Japanese inflation and monetary policy at the World Bank Group 2024 Fall Meeting in Washington, U.S., Oct. 23, 2024.
Kaylee Greenlee Beal | Reuters
The Bank of Japan raised its key rate by 25 basis points to 0.5% on Friday, bringing its policy rate to the highest level since 2008, amid signs of persistent inflation and rising wages, as it looks to normalize its monetary policy.
The move comes in line with expectations from CNBC’s survey, where a The overwhelming majority of economists predict an increase.
BOJ In his statement revealed that the decision was split 8-1, with board member Toyoki Nakamura dissenting on the rate hike.
Nakamura said the central bank should change policy only after confirming that firms’ earnings power has increased from a report released at the next monetary policy meeting.
After this decision, Japanese yen 0.6% stronger to trade at 155.12 against the dollar, while the country’s benchmark Nikkei 225 Stock indices rose slightly.
The yield on 10-year Japanese government bonds rose 2.5 basis points to 1.23%.
The Bank of Japan has long said that a “membership cycle” in which higher wages fuel rising fuel prices is what it needs.
Ahead of the meeting, senior BOJ officials, including Governor Kazuo Ueda and Deputy Governor Ryozo Himino, signaled the central bank’s willingness to raise rates.
Focus wages
The BOJ will closely monitor “shunto” wage negotiations, and expects to see “stronger wage growth” in fiscal 2025, Himino said in a Jan. 14 speech to business leaders.
In its Friday statement, the central bank noted that “after solid wage increases last year, many expressed views by firms that they will continue to raise wages steadily in this year’s spring labor-management wage talks,” due to the improvement. Corporate profits and a tight labor market.
The head of the Japanese Trade Union Confederation – Rengo – said that annual wage increases this year must exceed the 5.1% secured last year as real wages continue to fall, Reuters reported.
President Tomoko Yoshino said Rengo was officially seeking at least a 5% wage increase at this year’s “Shunto” wage talks and was targeting at least a 6% increase for smaller firms to narrow the income gap with workers at larger companies.
The BOJ noted that core inflation is slowly rising toward 2% as wages continue to rise.
CPI numbers released earlier on Friday Headline inflation hit its highest level since January 2023 at 3.6%, year-on-year in December. Core inflation rose to a 16-month high of 3%.
BOJ forecast that headline inflation rate May be around 2.5% For the fiscal year ending March 2026, factors such as higher import prices stemming from the depreciation of the yen.
More rate hikes?
In a January 21 note, Vincent Chung, T. Rowe Price’s co-portfolio manager of diversified income bond strategy said that going forward, a rate hike would be followed by “a series of gradual increases, potentially bringing the policy rate” to 1% by the end of the year.”
He added that the policy rate could even exceed 1%, as it is near the lower end of the BOJ’s neutral rate range.
In September, BOJ board member Naoki Tamura Said the neutral rate “At least will be closer to 1 percent,” though the BOJ has no official neutral rate forecast.
Chung noted that while Japanese officials have hinted at significant yen volatility, any significant currency intervention like last year seems unlikely.
Yen Dr last July The dollar hit its weakest level against the dollar since 1986reached 161.96. Japanese authorities Later confirmed that they spent 5.53 trillion yenor $36.8 billion, against the yen in July.
Japan spent more than 15.32 trillion yen ($97.06 billion) of currency by 2024.
Chung said inflation in the U.S. could pick up later this quarter, and with sustained economic growth, that could put upward pressure on yields, which could strengthen the dollar — weakening the yen.
“Investors should also consider that with potentially major policy changes on trade and the Fed nearing a pause, the bilateral risk to growth is likely higher this year than in 2024. As a result, we expect volatility in USD/JPY to remain high in 2025,” he said. said
