Boj increases interest rates by 25 bps, sees slow growth and higher inflation investiranje.com
Investing.com- The Bank of Japan raised interest rates by 25 basis points, as expected, with the central bank forecasting inflation to remain anchored around its annual target in coming years.
The BOJ slightly trimmed its gross domestic product forecasts for fiscal 2024 and 2025, while raising its inflation forecasts.
The BOJ increased to around 0.5%, in line with analysts’ expectations. The hike is the central bank’s third hike since it began tapering its ultra-loose monetary policy in early 2024.
The BOJ has signaled that, if its economic forecasts are fulfilled in the coming months, it will further increase interest rates.
“Given that real interest rates are at significantly low levels, if the outlook for economic activity and prices presented in the January outlook report is realized, the bank will continue to increase the policy rate and adjust the degree of monetary accommodation accordingly,” Boj said in a statement.
Friday’s hike comes just hours after data showed Japanese inflation rose further in December and remained above the BOJ’s 2% annual target.
The BOJ said policymakers expect CPI to average 2.6% to 2.8% in fiscal 2024, slightly above previous expectations of 2.4% to 2.5%. Their CPI outlook for 2025 is 2.2% to 2.6%, much higher than previous forecasts of 1.7% to 2.1%.
On the growth front, gross domestic product is expected to be around 0.4% to 0.6% in fiscal 2024, which is lower than previous forecasts, while GDP for 2025 is expected to be around 0.9% to 1.1%.
The BOJ’s tightening cycle was largely driven by expectations of a virtuoso cycle of higher wages and an increase in private spending, with recent data showing that both trends remained squarely in play.
The central bank recently signaled that it expects spring wage talks in 2025 to bring another round of policy hikes, giving it more headroom to keep raising interest rates.
But analysts expect the BOJ to only raise rates again until July, after the conclusion of Japan’s upper house election offers greater political clarity.
Policymakers are also on edge over U.S. President Donald Trump’s plans for increased trade tariffs, which could affect Japanese exporters, while also denting the yen.
