Board member Toyoaki Nakamura, who was also against the rate hike in July 2024, was the sole dissenter.
Today’s largely anticipated move was the first hike since July 2024 and lifts Japanese rates to their highest level since 2008. (See MNI BOJ WATCH: Board To Discuss Hike, Shift Outlook) Markets have not priced in an additional 25bp hike until December. (See chart)
REVISED CPI
The policy rate remained far below the BOJ’s neutral rate estimate of between 1-2.5%, Ueda stressed, noting the Bank was not in a rush to hike. (See MNI POLICY: BOJ Fears Neutral Lower Than Previously Estimated) The BOJ also revised down its estimate of potential growth to circa 0.5% from a range of 0.5-1.0% due to the labour shortage, which Ueda noted could have a small impact on the neutral rate estimate. However, the Bank was not at risk of falling behind the curve despite the BOJ’s revised price view, he added.
The BOJ expects core CPI in fiscal 2026 at 2.0% from October’s 1.9% forecast, while its core CPI median forecast for fiscal 2025 was revised up to 2.4% from 1.9%.
High prices and the weak yen had driven the revisions, Ueda continued. Inflation's year-on-year increase will likely slow in or after the middle of the year, he added, noting today’s rate hike will not spoil the economy as real interest rates remain at extremely low levels.
The performance of the economy and prices in line with the Bank’s forecasts, and underlying CPI increasing gradually towards the 2% target, had driven Friday’s rate rise, Ueda explained, noting market moves following U.S. President Donald Trump’s inauguration were within expectations.