The Bank of Japan (BoJ) raised its key short-term interest rate by 25 basis points to 0.5%, the highest in 17 years, as expected by markets.
Japan rate hike, inflation forecast up
This third rate hike since ending negative interest rates in March 2024 reflects positive wage growth and consistent progress on inflation. The BoJ signaled its intention for further rate increases and reduced monetary stimulus, contingent on economic and price data aligning with its projections. The decision was passed with an 8-1 vote, with board member Nakamura dissenting. In its quarterly outlook, the BoJ revised its core inflation forecast upward to 2.7% for fiscal year 2024 (from 2.5% in October), citing a growing labor shortage. They project inflation will moderate to 2.4% in fiscal year 2025 and reach the 2% target in fiscal year 2026.
Japan growth outlook trimmed
The BoJ also slightly lowered its 2024 GDP growth forecast to 0.5% from the previous 0.6%, while maintaining growth projections of 1.1% for fiscal year 2025 and 1.0% for fiscal year 2026.
