The Bank of Japan (BOJ) announced its third interest rate increase within a year as part of its ongoing efforts to bolster the domestic economy and stabilize the yen. On Friday, in a decision made in Tokyo, the central bank raised its policy rate by 25 basis points, bringing it to 0.5%. This move comes as the country navigates economic challenges exacerbated by global uncertainties, including changes in U.S. leadership with Donald Trump assuming the presidency.
The BOJ's decision seeks to strike a delicate balance between supporting Japan's economic growth and preventing further depreciation of the yen against the dollar. The increase is also part of a broader strategy to approach what economists refer to as the "neutral interest rate," a level that neither stimulates nor restricts economic activity.
BOJ Governor Kazuo Ueda addressed the media following the meeting, emphasizing the distance still to be covered before reaching the neutral rate. Despite the absence of a specific target figure for this rate, one BOJ study suggests it could lie within a range of 1.0% to 2.5%.
"There is still a considerable distance to the neutral interest rate" – BOJ Gov. Kazuo Ueda
Governor Ueda refrained from pinpointing an exact neutral rate, acknowledging instead that the path forward remains complex given current global economic conditions. The presence of Donald Trump as the new U.S. president adds an element of unpredictability, affecting international markets and influencing Japan's monetary policy decisions.