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MNI BoJ Review-Jan 2025: Another Step In Normalisation

The BoJ held its MPM on January 23-24 and decided to raise the policy interest rate from 0.25% to 0.50%, as expected.
Central Bank ReviewStoryCentral Bank ReportsAPACBoJ - ReviewJapanMarkets

EXECUTIVE SUMMARY: 

  • The Bank of Japan's (BoJ) recent monetary policy developments, including the 24 January decision to raise the policy rate by 25bps to 0.5%, mark a continued shift toward normalisation. This decision, though widely expected, reflected the BoJ’s growing confidence in achieving its economic outlook, supported by upward revisions to inflation forecasts and expectations of strong wage growth.
  • The BoJ’s decision was not unanimous, as Toyoaki Nakamura opposed the hike, reflecting lingering caution about the economic trajectory.
  • Inflation forecasts were revised upward, with core inflation expected to reach 2.7% in FY2024, 2.4% in FY2025, and 2.0% in FY2026. This outlook supports the central bank’s guidance for further rate hikes, albeit at an unhurried pace.
  • Analysts have noted that despite the hawkish shift in tone, Japan’s real policy rate remains deeply negative, suggesting minimal drag on economic activity. The BoJ’s emphasis on balancing inflation control with economic growth indicates that normalisation will proceed gradually.
  • In summary, the BoJ’s January decision underscores its incremental shift toward normalisation, buoyed by stronger inflation and wage growth forecasts. However, the path ahead remains uncertain, with the pace and timing of further hikes dependent on a confluence of domestic and international factors. While markets anticipate additional tightening, the BoJ's cautious stance suggests that normalisation will be measured and deliberate, ensuring that economic growth remains on track amidst evolving risks.

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:

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EXECUTIVE SUMMARY: 

  • The Bank of Japan's (BoJ) recent monetary policy developments, including the 24 January decision to raise the policy rate by 25bps to 0.5%, mark a continued shift toward normalisation. This decision, though widely expected, reflected the BoJ’s growing confidence in achieving its economic outlook, supported by upward revisions to inflation forecasts and expectations of strong wage growth.
  • The BoJ’s decision was not unanimous, as Toyoaki Nakamura opposed the hike, reflecting lingering caution about the economic trajectory.
  • Inflation forecasts were revised upward, with core inflation expected to reach 2.7% in FY2024, 2.4% in FY2025, and 2.0% in FY2026. This outlook supports the central bank’s guidance for further rate hikes, albeit at an unhurried pace.
  • Analysts have noted that despite the hawkish shift in tone, Japan’s real policy rate remains deeply negative, suggesting minimal drag on economic activity. The BoJ’s emphasis on balancing inflation control with economic growth indicates that normalisation will proceed gradually.
  • In summary, the BoJ’s January decision underscores its incremental shift toward normalisation, buoyed by stronger inflation and wage growth forecasts. However, the path ahead remains uncertain, with the pace and timing of further hikes dependent on a confluence of domestic and international factors. While markets anticipate additional tightening, the BoJ's cautious stance suggests that normalisation will be measured and deliberate, ensuring that economic growth remains on track amidst evolving risks.

FOR THE FULL PUBLICATION PLEASE USE THE FOLLOWING LINK:

Keep reading...Show less