SINGAPORE (Reuters) – The Bank of Japan raised interest rates on Friday to their highest since the 2008 global financial crisis, underscoring its confidence that rising wages will keep inflation stably around its 2% target.
The board decided to raise the BOJ’s short-term policy rate to 0.5% from 0.25% by an 8-1 vote. Board member Toyoaki Nakamura dissented to the decision.
QUOTES:
NAOYA HASEGAWA, CHIEF BOND STRATEGIST AT OKASAN SECURITIES, TOKYO
“The decision was in line with our expectations. We await comments from BOJ Governor (Kazuo) Ueda at his post-meeting news conference. We want to know his outlook for the future rate path, rather than why the BOJ raised rates at this meeting. The market now expects that the BOJ raises rates every six months so we want to know Ueda’s view on that.”
MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE
“The hike may have been expected but in what feels like the first time in a very long time, there were no major downgrades to their economic outlook. This keeps the door open to another 25bp hike by the year-end, and rates to sit at a whopping 0.75%.”
TAKAHIRO OTSUKA, SENIOR FIXED INCOME STRATEGIST AT MITSUBISHI UFJ MORGAN STANLEY SECURITIES, TOKYO
“The outcome was as expected, but it seems to be a little hawkish with the BOJ raising its inflation forecast. We want to check comments from (BOJ Governor Kazuo) Ueda to confirm the BOJ’s stance.”
KIERAN WILLIAMS, HEAD OF ASIA FX, INTOUCH CAPITAL MARKETS, LONDON
“The statement is something of a Rorschach test; hawks are pointing to the reiterations that price risks are skewed to the upside and that the BOJ will continue to hike if the economy evolves in line with the outlook… while doves are clinging to the dovish dissent from Nakamura, negative real wage mentions, notes of caution and the line that easy financial conditions will be maintained.”
“The evolution of yen price action throughout the day will depend on the tone adopted by BoJ Governor Ueda at the press conference.”
JOSEPH CAPURSO, HEAD OF INTERNATIONAL AND SUSTAINABLE ECONOMICS, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY
“They dropped a lot of hints in the media that they might do this, and they’ll probably hike again this year, we think they’ll probably hike two more times this year. But they might decide to wait for some time between rate hikes… so we think they’ll probably hike again mid-year.”
TOM NAKAMURA, CURRENCY STRATEGIST AND CO-HEAD OF FIXED INCOME, AGF INVESTMENTS, TORONTO
“A 25 basis point hike to 0.5%, as broadly expected, but inflation forecast raised for both headline and core. I think there was a risk that the Bank of Japan would lean more dovish in their assessment, but this reinforces the broader market expectation for another 25 bps hike later in the year.”
“The market reaction should be neutral, perhaps on the margin mildly bullish for the yen and slightly higher Japanese government bond yields. Ueda’s press conference will be key… for references to the perceived neutral rate and how it would influence the pace and extent of future policy changes.”
NAKA MATSUZAWA, CHIEF MACRO STRATEGIST, NOMURA, TOKYO
“Their logic remains the same. They are still far away from neutral, so it’s natural to make an adjustment. It’s not necessarily a tightening, rather a lesser easing, in a sense.”
“Unless the BOJ either changes the logic of rate hikes, or even raises the neutral point, which they have been mulling – about 1% – there’s not going to be much room for the market to price in further hikes in the future.”
MASATO KOIKE, SENIOR ECONOMIST, SOMPO INSTITUTE PLUS, TOKYO
“The focus of Ueda’s press conference would be about what was different this time in terms of the available information compared to December. Certainly, there have been new inputs such as BOJ Branch Managers’ Meeting and U.S. President Donald Trump’s inaugural speech, but at least Japan’s wage situation has not changed much. I’m wondering how Governor Ueda will explain that.”
“The terminal rate is also a point of interest. The economy would stay on-track (to the BOJ’s forecast), but it is questionable if inflation will stay stably above 2% toward the end of FY25. If goods price inflation slows and is not fully passed on to service prices, the BOJ may not be able to raise rates beyond 1% and stop at around 0.75%.”
CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE
“Dollar/yen went both ways likely in reaction to the non-unanimous vote, but it subsequently eased. The upward revision to CPI forecast also exudes a sense of confidence the policymakers have with regard to inflation and the economy meeting expectations. The focus next is on Governor Ueda’s press conference.”
HIROFUMI SUZUKI, CHIEF FX STRATEGIST, SMBC, TOKYO
“The rate hike itself was fully priced in, as it had been widely reported beforehand. The rate hike was as I expected, and I now predict that the Bank of Japan will implement rate hikes every six months going forward.”
“Due to the significant upward revisions to the inflation outlook for fiscal years 2025 and 2026, the USD/JPY reacted with yen appreciation. Governor Ueda’s comments on exchange rates during the press conference (will also) draw attention.”
BEN BENNETT, ASIA-PACIFIC INVESTMENT STRATEGIST, LEGAL AND GENERAL INVESTMENT MANAGEMENT, HONG KONG
“The decision was well-telegraphed. The backdrop of elevated global yields and a strong dollar is supportive for such a move, reducing the likelihood of a repeat of the summer market meltdown when a Japanese rate hike led to a spike in the yen.”
“Today’s move is still yen positive, but I’m not surprised the market reactions have been modest.”
KOTA SUZUKI, STRATEGIST, NOMURA ASSET MANAGEMENT, TOKYO
“I expect the rate will be kept the same for at least the next six months. This rate hike took six months from the last time. The central bank will be a little more cautious from now on as it will carefully assess the economic situation and the impact of the interest rate hike.”
“If the rate hike were to be brought forward, it would probably be due to the depreciation of the yen, which would have an impact on prices through rises in import prices.”
“When the interest rate hike is postponed, it’s because of economic uncertainty both in Japan and overseas.”
TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE, TOKYO
“The BOJ put the price outlook above 2% for both fiscal 2025 and 2026, revised up from the previous forecasts of 1.9% for both years. This indicates that the BOJ would continue raising interest rates through 2026, against some market expectations that rate hikes will stop when the policy rate hits 0.5%-1%.
“Whether the BOJ can do so will probably depend on oil prices and foreign exchange rates… I don’t think the underlying inflation is still strong enough to reach 2%. I expect the BOJ to stop rate hikes sometime in fiscal 2025.”
SHOKI OMORI, CHIEF GLOBAL DESK STRATEGIST, MIZUHO SECURITIES, TOKYO
“This rate hike had been fully priced in, resulting in no significant volatility.”
“For the Outlook Report, it has been noted that the inflation forecast has been revised upward due to cost-push factors. Although comments on rice prices had been reported in advance, this emphasis may be intended to highlight the upward revision of the inflation outlook driven by cost-push elements. There may be caution in stressing the advancement of demand-pull inflation at this juncture, possibly due to concerns that it could significantly elevate expectations for policy rate hikes.”
“A preliminary review of the Outlook Report suggests that while further interest rate increases are anticipated in the future, there is an emphasis on maintaining flexibility regarding the timing and terminal rate.”