ISTANBUL
The Bank of Japan decided to hold the policy rate steady at 0.5% Wednesday, as it held its first meeting in Prime Minister Sanae Takaichi’s term that started earlier this month.
The decision matched the market expectations and came as the Japanese inflation has stayed above the central bank’s 2% target for 41 months.
The central bank said in a statement that the decision was taken by a 7-2 vote, with two members advocating for a 25 basis point rate hike.
The Bank of Japan reiterated its commitment to continue increasing borrowing costs if the economy performs as forecast, but it remained unchanged, projecting a core inflation of 2.7% in fiscal 2025 and 1.8% in fiscal 2026.
The central bank said Japan’s economy is likely to moderate as trade and other policies in every jurisdiction have led to a slowdown in overseas economies and a decline in domestic corporate profits. It added that factors such as supportive fiscal conditions are expected to support the economy.
“There are various risks to the outlook. In particular, it still remains highly uncertain how overseas economic activity and prices will react to trade and other policies in each jurisdiction,” it added.
The markets responded to the anticipated decision in a more subdued manner, with the Nikkei stock index rising 0.13%, the yen declining 0.2% at 153.03 to US dollar, and Japanese 10-year bond yields barely changing.
Takaichi is seen by economists as a supporter of “Abenomics,” the former Prime Minister Shinzo Abe’s economic philosophy that advocated structural reforms, fiscal spending, and loose monetary policy.
By attracting foreign investment, higher interest rates typically strengthen a currency, whereas lower rates typically weaken it.
Experts predict that Takaichi’s actions will devalue the yen, as was the case during the infamous “Takaichi trade,” in which the benchmark Nikkei 225 index reached all-time highs and the yen lost against the US dollar to above the 150 level.
The BOJ’s decision was made in the context of a comparatively weak export environment. Japan’s exports fell for four consecutive months before increasing in September.