Bank of Japan Governor Kazuo Ueda delivers a governor’s speech on Japan’s inflation and monetary policy at the 2024 Autumn Meeting of the International Monetary Fund (IMF) and the World Bank Group in Washington, the United States, on October 23, 2024. Answers question.
Kelly Greenlee Beale | Reuters
The Bank of Japan raised interest rates by 25 basis points to 0.5% on Friday, taking its policy rate to its highest level since 2008 as it seeks to normalize monetary policy amid signs of persistent inflation and rising wages.
The move was in line with expectations from a CNBC survey, in which The vast majority of economists predict a rate hike.
Bank of Japan in its statement It was revealed that the final decision was made by a vote of 8 to 1, with board member Toyoaki Nakamura disapproving of the rate hike.
Nakamura said the central bank should adjust policy only after confirming an improvement in corporate profitability in a report released at the next monetary policy meeting.
After making this decision, yen It rose 0.6% against the dollar to 155.12, while the country’s benchmark rose 0.6% to 155.12 Nikkei 225 Index Stock indexes edged higher.
Japan’s 10-year government bond yield rose 2.5 basis points to 1.23%.
The Bank of Japan has long said that raising interest rates requires a “virtuous cycle” in which rising wages drive up prices.
Ahead of the meeting, senior BOJ officials, including Governor Kazuo Ueda and Deputy Governor Ryozo Himino, said the central bank was willing to raise interest rates.
Wages take center stage
Speaking to business leaders on January 14, Jimino said the Bank of Japan would pay close attention to the “Spring Knife” wage negotiations and hoped to see “strong wage increases” in fiscal 2025.
“Businesses have expressed many views that wage negotiations between labor and management this spring will continue to steadily increase wages, following a steady rise in wages last year,” the central bank said in a statement on Friday, citing improvements in wages. Corporate profits and labor markets are tight.
Rengo, president of the Japan Federation of Trade Unions, said that as real wages continue to decline, this year’s annual wage increase must exceed last year’s 5.1%. Reuters reports.
President Yuko Yoshino said that Lianhe Township formally seeks a wage increase of at least 5% in this year’s “Spring Capital” wage negotiations, and aims for a minimum increase of 6% for small businesses to narrow the income gap with workers in large companies.
The Bank of Japan pointed out that as wages continue to rise, the underlying inflation rate gradually rises to 2%.
Consumer Price Index (CPI) data released earlier on Friday It showed that the overall inflation rate in December reached 3.6% year-on-year, the highest level since January 2023. Core inflation rose to 3%, a 16-month high.
Bank of Japan forecasts headline inflation rate Probably around 2.5% In the fiscal year ending in March 2026, import prices will rise due to factors such as the depreciation of the yen.
More rate hikes?
Going forward, the rate hikes will be followed by “a series of gradual increases that will likely result in higher policy rates,” Vincent Chung, co-portfolio manager of T. Rowe Price’s diversified income bond strategy, said in a Jan. 21 note. It will reach 1% by the end of the year. “
He added that the policy rate could even exceed 1% as that is closer to the lower end of the BOJ’s neutral interest rate range.
In September, Naoki Tamura, a member of the Board of Directors of the Bank of Japan represents the neutral interest rate Although the Bank of Japan has no official neutral interest rate forecast, it “will be at least around 1%.”
Chung noted that while Japanese officials say the yen is volatile, large-scale currency intervention like last year’s seems unlikely.
Last July, the yen Against the dollar, it hits its lowest level since 1986reaching 161.96. Japanese authorities It was later confirmed that they spent 5.53 trillion yenor US$36.8 billion, to support the yen exchange rate in July.
Japan Spending more than 15.32 trillion yen ($97.06 billion) to support the currency in 2024.
Chung said U.S. inflation is likely to rise later in the quarter, which, coupled with continued economic growth, could put upward pressure on yields, which could strengthen the dollar and weaken the yen.
“Investors should also consider that with potential major policy shifts on trade and the Fed approaching a pause, risks to growth in both directions may be greater this year than in 2024. As a result, we expect realized volatility in USD/JPY to be higher in 2024 Stay at a high level in 2025,” he said.