The central bank expects Japan’s GDP to grow moderately as other countries return to growth, and the BOJ sees a virtuous cycle of rising prices and wages, supported by government’s economic measures and accommodative financial conditions.<\/p>\n
The central bank kept the benchmark interest rate steady in a split 8-1 decision<\/a>, after raising it to the highest level in 30 years in December<\/a>, ahead of snap polls that could see Prime Minister Sanae Takaichi sharpen her advocacy for monetary easing and fiscal support.<\/p>\n In its statement, the BOJ revealed that board member Hajime Takata had proposed raising rates to 1%, saying that risks to prices in Japan were skewed to the upside. The bank in its outlook forecast inflation to fall below the 2% target in the first half of the year. <\/p>\n Japan’s December inflation data<\/a>, released earlier in the day, showed headline price growth coming in at 2.1%, its lowest since March 2022, but still running above the BOJ’s target of 2% for a 45th straight month.<\/p>\n Japan embarked on the path to policy normalization in March 2024, abandoning the world’s last negative interest rate regime, and has stressed on raising rates subject to a virtuous cycle of growth in wages and prices.<\/p>\n That policy, however, has come under political pressure with prominent names including Takaichi advocating for softer rates to fuel economic growth. Japan’s economy<\/a> shrank more than initially estimated in the third quarter, contracting 0.6% quarter on quarter, and 2.3% on an annualized basis.<\/p>\n Bond and yen worries <\/p>\n Despite BOJ’s monetary tightening, Japanese bond yields have been rising, hitting multidecade highs<\/a> over the past month, driving capital outflows and weakening the yen. This comes as real rates still remain negative, according to the BOJ, as well as mounting fiscal worries. <\/p>\n Takaichi had planned a record $783 billion budget for the next fiscal year, starting April 1, on top of a $135 billion stimulus package last year targeted at helping households with the rising cost of living. <\/p>\n Pressured by rising yields amid fiscal concerns, the yen has seen a significant decline against the dollar toward the end of last year, falling about 4.6% since Oct. 21, when Takaichi became prime minister to its current level of 158.97.<\/p>\n Stock Chart IconStock chart icon This weakness prompted Finance Minister Satsuki Katayama to warn against “one-sided” moves in the currency. Katayama reportedly told reporters in Washington<\/a> last week that she has conveyed her “deep concern” over the depreciation in yen and Treasury Secretary Scott Bessent shared her view on “one-sided” weakness in the Japanese currency. <\/p>\n On Friday, she reportedly said that the bond market rout has appeared to have receded, and that she was closely monitoring financial markets with a “high sense of urgency.”<\/p>\n![\"hide](\"https:\/\/static-redesign.cnbcfm.com\/dist\/a54b41835a8b60db28c2.svg\")
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