The Bank of Japan announced on Wednesday morning to raise short-term interest rates by 15 basis points, and the decision came as a surprise to the markets significantly.
The highlights of the monetary policy statement issued by the Bank of Japan were as follows:
- The Bank of Japan made its decision on raising interest rates by a vote of 7-2.
- Nakamura and Noguchi oppose the decision on prices.
- Reduce bond purchases to 3 trillion yen from the first quarter of 2026.
- The vote on the reduction of bonds was unanimous.
- Review the bond reduction plan in June next year through a mid-term review.
- Core inflation is expected to rise gradually.
- The Japanese economy is recovering moderately, although some weakness has appeared.
- If the forecasts of economic activity and prices come true, we will continue to raise interest rates and adjust the degree of monetary easing accordingly.
- Inflation expectations for companies and households are rising moderately.
- The Bank of Japan will make appropriate monetary policy decisions to achieve the 2% inflation target in a sustainable and stable manner.
Returning to the decision itself, Noguchi claimed that he disagreed with the opinion because he was not convinced by the recent economic conditions.
High prices have been weighing on consumption and this is something that the Bank of Japan also acknowledges.
There is little change in the economic outlook and the core inflation expectations for 2025 and 2026 remained relatively unchanged compared to before as well.
As for the curtailment of the bond-buying program, it was as you would expect as they announced a more gradual approach to dealing with things.
There is also the mentioned revision period to see and adjust the pace accordingly, if necessary.
