Bank of Japan keeps key policy rate at 0.5%
By Michele Maatouk
Date: Wednesday 19 Mar 2025
(Sharecast News) - The Bank of Japan maintained its key policy rate steady at 0.5% on Wednesday, as expected.
The decision was reached unanimously at a two-day policy meeting.
The BoJ said in a statement: "Concerning risks to the outlook, there remain high uncertainties surrounding Japan's economic activity and prices, including the evolving situation regarding trade and other policies in each jurisdiction and developments in overseas economic activity and prices under such situation, developments in commodity prices, and domestic firms' wage- and price-setting behaviour.
"Under these circumstances, it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan's economic activity and prices. In particular, with firms' behaviour shifting more toward raising wages and prices recently, exchange rate developments are, compared to the past, more likely to affect prices."
Marcel Thieliant, head of Asia-Pacific at Capital Economics, said the BoJ's decision to leave policy settings unchanged was widely anticipated but he still thinks that the Bank's tightening cycle has much further to run.
"After having lifted its policy rate to 0.5% in January and having provided no signals of further tightening today, it came as no surprise that the Bank didn't hike rates further. The short statement was unchanged relative to January except for the Bank's assessment of risks," he said.
"We still think there's a decent chance of a rate hike at the Bank's May meeting. After all, inflation is well above the Bank's 2% target and set to overshoot board members' forecasts from January. What's more, this year's spring wage negotiations resulted in even larger pay hikes than last year's, which should result in additional upward pressures on inflation over the coming months."
He added, however, that with Donald Trump set to unveil reciprocal tariffs on most US trading partners next month, there's a case for the BoJ to wait a few more weeks to see how financial markets, economic activity and inflation will respond.
"Regardless of when the next rate hike will happen, we now expect the Bank to lift its policy rate to 1.5% by 2027, which is well above the analyst consensus of 1.0%," said Thieliant.
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