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The Japanese national flag is seen at the headquarters of the Bank of Japan (BoJ) in Tokyo on July 31, 2024. The Bank of Japan raised its key interest rate on July 31 for only the second time in 17 years in another step away from its massive monetary easing program.
Kazuhiro Nogi | Afp | Getty Images
Japan’s central bank on Thursday kept benchmark interest rates steady at 0.5 percent in its first meeting since Sanae Takaichi took over as the country’s prime minister earlier this month.
The decision was in line with the expectations of economists polled by Reuters and comes despite inflation remained above the central bank’s 2% target for 41 consecutive months.
This was announced by the central bank of Japan the decision was split 7-2, with board members Naoki Tamura and Hajime Takata proposing a 25 basis point increase.
Market reaction to the expected decision was relatively muted, with Japanese 10-year bond yields little changed, the yen 0.2% weaker at 153.03, while the Nikkei stock index rose 0.4%.
This BOJ ruling comes as US Treasury Secretary Scott Bessant on Monday met with Satsuki Katayama, the new finance minister in the Takaichi administration, and appeared to take aim at Tokyo because of the weakness of the yeneven commenting on the country’s monetary policy.
In a statement on Tuesday, the US Treasury said Bessent “underscored the important role of sound monetary policy formulation and communication in stabilizing inflation expectations and preventing excessive exchange rate volatility.”
Higher interest rates tend to strengthen the currency by attracting foreign inflows, while lower interest rates tend to weaken it.
The weak yen has been an obstacle for US President Donald Trump, who said in March that Tokyo had weakened its currency to gain an unfair trade advantage.
Trump met with Takaichi, who is a supporter of lower interest rates and has in the past called the BOJ’s rate hikes “stupid.”
While Takaichi appears to have softened her stance, this push to strengthen the yen is still at odds with her plans for massive fiscal spending and loose monetary policy.
“What is most important is for the BOJ and the government to coordinate policy and communicate closely,” Takaichi said on Oct. 21, according to Reuters.
Takaichi is considered a supporter of “Abenomics,” the late Shinzo Abe’s economic strategy that advocates loose monetary policy, fiscal spending and structural reforms.
on Wednesday, Bessent wrote to X that “the government’s willingness to allow the BOJ policy space will be key to stabilizing inflation expectations.”
Katayama said this in March the real value of the yen it was probably around 120-130 against the dollar, about 26% stronger than the current level of around 152.
Takaichi’s policies are likely to depreciate the yen, experts say, something that has already happened in the so-called “Takaichi trade” that saw Nikkei 225 hit record highs and the yen weakened above the 150 level against the dollar.
The BOJ’s decision also comes against the backdrop of a relatively weak export landscape. Japan’s exports contracted for four straight months before seeing a recovery in September, although shipments to the US were still falling.
