Bank of Japan Likely to Keep Interest Rate Unchanged

The Bank of Japan (BOJ) is expected to keep its benchmark interest rate unchanged at 0.25% during its upcoming two-day meeting, according to a survey of economists conducted by CNBC. A slim majority of 13 out of 24 economists (54%) believe the BOJ will maintain its current rate as it waits for greater clarity on domestic wage growth and consumer spending, as well as potential policy shifts under U.S. President-elect Donald Trump.

Bank of Japan Likely to Keep Interest Rate Unchanged

The BOJ last raised its interest rate in July and has signaled it could tighten monetary policy further if wage growth and inflation align with its projections. However, BOJ Governor Kazuo Ueda has expressed caution, noting that uncertainties around wage trends and U.S. economic policies may influence the bank’s decision. Japan’s interest rates remain the lowest among developed countries, a reflection of the BOJ’s prolonged efforts to stimulate the country’s stagnant economy.

Many economists are optimistic about Japan’s economic trajectory, suggesting that the central bank is on track to meet its 2% inflation target, largely driven by rising wages. However, experts emphasize that the BOJ may prefer to wait until next year to assess how the upcoming spring wage negotiations unfold and to better understand the potential impact of U.S. trade policies.

Concerns about the sustainability of wage increases among small and medium-sized enterprises have also emerged as a key challenge for the BOJ. While regular wages have been growing at 2.5% to 3% annually, inflation has remained above the BOJ’s target for 30 consecutive months.

Market expectations for a rate hike in December have waned, with swap markets assigning a 77% probability of no change. Some economists still believe a rate hike is possible, but they acknowledge the influence of U.S. policy and other uncertainties, including Japan’s fiscal policies, may delay any immediate action.

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