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. <\/p>\n The bank, which forecast inflation to fall below the 2% target in the first half of the year, expects underlying inflation to “continue rising moderately.”<\/p>\n Underlying inflation is still supported by wage growth and sticky prices of services that continue to run above 2%, according to Masahiko Loo, senior fixed income strategist at State Street Investment Management. <\/p>\n “This firm underlying inflation reinforces our view that the BOJ’s normalization path will stay intact, albeit at a gradual pace,” he said. <\/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 So called “core-core” inflation, which strips out fresh food and energy prices, came in at 2.9% in December.<\/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 BOJ Governor Kazuo Ueda said Friday that the bank will continue to raise interest rates if its economic and price forecasts materialize, according to a Reuters translation of his remarks. <\/p>\n Bond and yen worries <\/p>\n
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