The Bank of Japan (BOJ) announced a significant decision on Friday, raising its policy rates by 25 basis points to 0.5%, marking the highest level since 2008. This move aligns with economist predictions from a recent CNBC survey conducted between January 15-20. The decision reflects the central bank's strategic response to ongoing economic conditions and is expected to influence financial markets.
Economists had anticipated this rate hike, as it positions the policy rate closer to the lower end of the BOJ's neutral rate range. Despite the absence of an official neutral rate forecast, BOJ board member Naoki Tamura suggested that the neutral rate "would be at least around 1 percent" back in September. This statement indicates potential for future increases, with the policy rate possibly exceeding 1% in the near term.
Following the BOJ's announcement, the yen experienced a slight depreciation, trading at 156.09 against the dollar. Conversely, the Nikkei 225 stock index showed a positive reaction, climbing by 0.59%. Japanese officials have highlighted the significant volatility of the yen, especially after it reached its weakest level against the dollar since 1986 in July at 161.96. In response to currency fluctuations, Japan invested over 15.32 trillion yen ($97.06 billion) throughout 2024 to stabilize the currency.
Senior BOJ officials, including Governor Kazuo Ueda and Deputy Governor Ryozo Himino, have previously indicated the central bank's preparedness to adjust rates. This rate hike underscores their commitment to addressing economic challenges while keeping a close eye on the "shunto" wage negotiations. The BOJ anticipates seeing "strong wage hikes" during the fiscal year of 2025, which could play a crucial role in sustaining economic stability.