Still to come is the press conference from Bank of Japan Governor Ueda, due at 0630 GMT (and 0130 US Eastern time for the night owls).
Ueda is expected to signal further rate hikes to come, with a risk he is more hawkish than he usually is.
The BoJ hiked today mainly due to two factors, that it had outlined previously and very publicly:
- signs of ongoing wage rises
- no market turbulence in the wake of Trump’s inauguration and EO signing frenzy
BoJ eyes were also on the weak yen, they’d like to avoid further weakness. If the Fed goes on an extended pause the BoJ may not get its wish.
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From the decision:
- Bank of Japan (BOJ) made its rate decision by an 8-1 vote.
- BOJ board member Nakamura dissented from the decision on the rate hike.
- Nakamura opposed the rate hike, stating that the BOJ should decide on changing the guideline for money market operations only after confirming a rise in firms’ earnings power, based on sources at the next monetary policy meeting (MPM).
- The BOJ stated that real interest rates remain at very low levels.
- The BOJ indicated it will continue to raise the policy rate if the economy and prices move in line with its forecast.
- The BOJ affirmed that it will conduct monetary policy appropriately to achieve its 2% inflation target in a sustainable and stable manner.
- The BOJ noted that the likelihood of Japan’s economy aligning with its forecast is increasing.
- The BOJ reported that Japan’s economy is recovering moderately, albeit with some weaknesses.
- Many firms have indicated that they plan to offer solid pay increases in the upcoming spring wage negotiations.
- The BOJ observed that underlying inflation is gradually rising towards its target.
- The BOJ stated that overall, markets remain stable, although various uncertainties persist.
- The BOJ emphasized that even after a policy shift, real interest rates will remain deeply negative, and accommodative monetary conditions will be maintained.
- The Bank of Japan (BOJ) reports that consumption is rising moderately as a trend.
- Japan’s potential growth rate is estimated to be around 0.5%.
- Inflation is slightly overshooting expectations due to rising import prices caused by a weak yen and increasing rice costs.
- Medium- and long-term inflation expectations are moderately increasing.
- Nominal wages are clearly rising, and more Japanese firms are passing on higher labor and distribution costs.
- The BOJ expects inflation expectations to gradually increase as changes in corporate and household behavior continue.
Forecasts:
- The BOJ board’s median forecast for core CPI in fiscal 2024 is +2.7%, up from +2.5% in October.
- The BOJ board’s median forecast for core CPI in fiscal 2025 is +2.4%, up from +1.9% in October.
- The BOJ board’s median forecast for core CPI in fiscal 2026 is +2.0%, up from +1.9% in October.
- The BOJ board’s median forecast for real GDP in fiscal 2024 is +0.5%, compared to +0.6% in October.
- The BOJ board’s median forecast for real GDP in fiscal 2025 remains at +1.1%, unchanged from October.
- The BOJ board’s median forecast for real GDP in fiscal 2026 remains at +1.0%, unchanged from October.
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USD/JPY was volatile upon the release but is net a touch softer:
