As Japan’s central bank wraps up a two-day policy meeting tomorrow, markets are abuzz with expectations that the Bank of Japan (BOJ) will lift its key interest rate from 0.5% to 0.75%. If approved, this would be the largest hike in three decades.
Inflation in Japan has exceeded the BOJ’s 2% target since early 2022, largely fueled by stubbornly high food prices. The bank’s policymakers face a delicate balance: tame inflation without derailing a fragile economic recovery.
Masazumi Wakatabe, former BOJ deputy governor and now a member of the government’s top economic council, warned against moving too soon. "If Japan’s neutral rate rises as a result, it would be natural for the BOJ to raise interest rates," Wakatabe said at a recent panel, urging caution.
Corporate leaders are also on edge. Akihiro Kaneko, president of the Confederation of Japan Automobile Workers’ Unions, told the Japan Times that a sharper yen could dent exporters’ profits and squeeze wage growth in the next fiscal year. "If the yen sharply strengthened after Friday’s decision, it could affect corporate sentiment," Kaneko said. He added that a moderate hike would be more manageable for companies adapting to new cost pressures.
The anticipated 25-basis-point increase underscores a widening rift between policymakers calling for restraint and those ready for deeper tightening. Investors will be watching tomorrow’s decision closely for signals on the BOJ’s future path, which could shape Japan’s economic landscape well into 2026.
Reference(s):
cgtn.com
