The Bank of Japan (BOJ) maintained its benchmark interest rate at 0.25% on Thursday to closely observe the effects of financial and foreign exchange market movements on Japan’s economy and price stability.
This decision resulted in a 0.3% depreciation of the yen against the dollar, pushing it to 155.42, its lowest in a month. Japan’s stock markets retraced their gains, with the benchmark Nikkei 225 declining by 0.74%, a slight improvement from the earlier 0.96% loss observed before the announcement.
In an unexpected move, the BOJ’s decision to keep rates unchanged defied predictions from a Reuters poll, where a 25 basis point hike was anticipated. This contrasts with actions in the United States, where the Federal Reserve reduced its rates by 25 basis points, setting the federal funds rate to a range of 4.25%-4.5%.
The BOJ board’s decision was an 8-1 vote, with board member Naoki Tamura in favor of a 25-basis-point increase.
Meanwhile, the central bank remarked on the persistent uncertainties clouding Japan’s economic outlook and pricing strategies, highlighting that shifts in corporate behavior towards wage and price hikes could render exchange rate fluctuations more impactful than before.
On the other hand, the rate decision aligned with predictions from a CNBC survey, where 13 out of 24 economists foresaw a hold in the December rate, with a potential rise in January. This survey was conducted before the Federal Reserve’s recent indication of a slower pace of rate cuts heading into 2025.
