The Japanese central bank announced today the first interest rate hikeending the era of zero/negative rates, but it does not change its generally accommodative stance. The Monetary Policy Committee, at the end of this meeting, announced the increase in reference rate by 25 points, bringing it at around 0.25%, the highest since 2008from its previous range of zero to 0.1% and also outlined a plan to reduce its asset purchase program.
The Central Bank took decisions, including changes to key interest rates, with a majority of 7 votes in favor and 2 against.
The Board said it expected the real interest rates will remain “significantly negative” and reiterated the generally accommodative stance of monetary policy, in support of economic growth.
Inflation and growth estimates
The BoJ expects that Core inflationwhich excludes food prices, reach 2.5% by the end of fiscal year 2024 that is to say in March 2025, and that it is confirmed at about 2%, in line with the target, in the following two years 2025 and 2026.
At the same time, the Japanese central bank confirmed that economic activity and prices appear “generally in line with expectations” and has reformulated its growth estimates for the GDP at +0.5-0.7% from +0.7-1%.
In the industrial sector, the investments of companies have recorded a moderate growth trendwith
corporate profits improving. Among families, the private consumption they showed a good hold
despite the impact of rising prices and other factors. On the front salarygrowth is widespread across all companies, large and small, and does not appear to have had significant impacts on consumption. The BOJ had repeatedly stated that it wanted to activate a “virtuous circle” of rising prices and wages. On the front of pricesthe pass-through effect of cost increases induced by import prices on consumer prices has weakened.
For this reason the central bank confirmed that will continue to adjust the interest rate of reference, assuming that its economic prospects are realized.
QE withdrawal also announced
The Bank of Japan then also announced a gradual withdrawal of quantitative easing measures, confirming that will reduce monthly purchases of Japanese government bonds (JGB) up to 3 trillion yen per month by the first quarter of 2026, reducing its purchases by approximately 400 billion yen per quarter. A plan that – the central bank specified – will be conducted with flexibility and reassessing its opportunity at the June 2025 meeting.
