🇯🇵❗️Risk In The Week: BoJ March Monetary Policy Decision

**As seen in Risk In The Week report 03/16/25, get access now! cablefxm.co.uk

Back on late January, the BoJ decided to raise its short-term

policy interest rate from 0.25% to 0.5%, marking the highest

level since the 2008 global financial crisis. This decision was

widely anticipated and reflects the BoJ's ongoing efforts to

normalize monetary policy after years of ultra-loose

measures.

On the rate hike decision, the BoJ increased the short-term

policy rate by 25 basis points to 0.5%, decided in an 8-1

vote, with board member Toyoaki Nakamura dissenting. This

move was seen as a step toward gradually pushing rates

closer to a neutral level, estimated by analysts to be around

1%. On the level of the neutral rate, Ueda indicated there is

"still quite some distance" between the current policy rate

and Japan’s neutral rate (estimated between 1% and 2.5%),

signaling room for further gradual increases. He stressed a

cautious approach to avoid significant economic disruptions

as rates approach or exceed neutral levels. On the inflation

and wage outlook, Governor Kazuo Ueda emphasized that

the decision was driven by increasing confidence that Japan

is on track to sustainably achieve the BoJ's 2% inflation

target. The bank noted that wage and price increases were

broadening, supported by expectations of steady wage

growth in upcoming annual negotiations. On policy

guidance, the BoJ maintained its stance that it would

continue raising rates if economic and price developments

align with its forecasts. However, Ueda provided little clarity

on the timing or pace of future hikes, stating that decisions

would depend on incoming economic and price data, as well

as associated risks.

Analysts at Natixis said that the BoJ is likely to remain on

hold at the March meeting, while they expect the central

bank to deliver a hawkish tone. They noted that a stronger

Yen is alleviating cost push inflation, the economic outlook is

deteriorating with increasing uncertainty on US policies.

Furthermore, Natixis warned that the expected incremental

wage increase at the spring negotiation is unlikely to be

regarded as additional evidence of a strengthening virtuous

circle between nominal wages and inflation yet.