Bank of Japan keeps interest rates steady amid US risks
The BOJ is likely to keep interest rates unchanged at 0.5% amid concerns about a slowing US economy and the impact of President Trump's tax policies.
Interest rates unchanged amid uncertainty
The Bank of Japan (BOJ) is expected to keep interest rates unchanged at its meeting ending on Friday. Policymakers want more time to assess whether the economy can withstand tariffs imposed by US President Donald Trump and growing signs of weakness in the US economy.
The move comes after the US Federal Reserve (Fed) cut interest rates and signaled it could continue to cut them in the near future to prevent the labor market from weakening.
Slowing US growth dims the prospect of a BOJ rate hike, especially as Japanese exports have begun to be hit by new tax measures.
Investors are paying special attention to Governor Kazuo Ueda's post-meeting press conference for clues on the possibility of the BOJ resuming its rate-hike cycle, which has been on hold since January.
Scenario for the coming months
Some experts, including Kei Fujimoto of SuMi TRUST, predict the BOJ could raise rates early next year, but it is unclear whether a decision will be made as soon as October. Officials will carefully consider the impact of tariffs on corporate profits and the ability of companies to continue raising wages.
A Reuters survey found most economists expect the BOJ to raise rates by another 0.25 percentage point by year-end, but the timing remains controversial, with focus focused on October or January.
Pressure from inflation and the job market
While there are many reasons to slow down in raising interest rates, the BOJ remains under pressure from high food prices and a tight labor market.
New data showed core consumer prices rose 2.7% in August from a year earlier, slowing for the third straight month but still above the 2% target. Some hawkish members of the council warned that keeping real interest rates negative for too long could pose risks to the economy.
Political impact and policy direction
The BOJ’s monetary policy picture is further complicated by domestic politics. Japan’s ruling party will hold a leadership election on October 4 after Prime Minister Shigeru Ishiba announced his resignation.
Leading candidate Sanae Takaichi, who strongly opposes raising interest rates, will announce his campaign platform on the same day as the BOJ press conference.
The BOJ ended its decade-long stimulus program and raised short-term interest rates to 0.5% in January, confident that Japan can maintain its 2% inflation target.
However, Governor Ueda still pledged to be cautious in every step, especially when it is not yet possible to clearly determine the impact of US tax policy on the Japanese economy.
