The Bank of Japan (BOJ) has decided to maintain the current guideline for money market operations by an 8-1 majority vote, aiming for the uncollateralized overnight call rate to remain at around 0.25%. This decision, made during today's monetary policy meeting, comes as Japan's economy continues its moderate recovery, with improvements in corporate profits, business sentiment, and private consumption. Despite a flat export and industrial production performance, inflation expectations have risen moderately.
The Consumer Price Index (CPI) remains in the 2.0%-2.5% range, reflecting rising service prices due to wage increases. The BOJ forecasts underlying CPI inflation to rise gradually, reaching levels consistent with the 2% price stability target in fiscal 2025, with external factors like resource prices playing a key role. The BOJ also concluded a broad review of its monetary policy, focusing on the impacts of unconventional policies and their future application to ensure stable achievement of the inflation target. Risks to the economic outlook include overseas economic conditions, commodity price fluctuations, and domestic wage and price-setting behavior. The lone dissenting vote came from Tamura Naoki, who proposed raising the call rate target to 0.5%, citing upward risks to inflation.
The proposal was rejected. Looking ahead, ING Research expects the BOJ to continue its policy normalization, forecasting a total of 75 basis points in rate hikes by the end of 2025, with hikes expected in January, May, and October..