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Essentials of Monetary Policy

Bank of Japan hikes and keeps the door open for tightening

January 24, 2025
Mirza Shaheryar Baig
Foreign Exchange Strategist

According to the Bank of Japan (BoJ)

  • The BOJ raised the policy interest rate from 0.25% to 0.5%, in line with our and market expectations.
  • The accompanying quarterly outlook report carried two key changes. First the price outlook was revised higher with core CPI forecast for FY25/26 raised sharply from 1.9% to 2.4% and risks were noted to the upside. This is more hawkish than market expectations, and a welcome shift from the BoJ which had fallen behind the curve on inflation. Second, in the key paragraph on its policy stance, the sentence “the Bank needs to pay due attention to overseas economies… and developments in financial markets” was omitted, suggesting a lower bar for future hikes.
  • In the press conference, Governor Ueda delivered cautious remarks, noting the inflation upgrade was due to supply factors which will wane later this year. He did not comment on timing of future hikes. 

Implications

The overall message is that the BoJ is now more concerned about inflation and willing to embrace hikes in 25bps increments. We maintain our forecast for 2 more 25bps hikes this year, taking the policy rate to 1%, but now we see some upside risk to that call. 


2025 Schedule of Central Bank Meetings


2024 Schedule of Central Bank Meetings


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