Key Points:

  • The Bank of Japan decided not to raise interest rates at its September meeting.
  • Global market instability and concerns about the state of the U.S. economy are putting pressure on the Bank of Japan.
  • The change in Japan’s Prime Minister adds further uncertainty regarding future monetary policy.

According to the minutes of the September meeting, Bank of Japan officials discussed the feasibility of gradually raising interest rates. However, given the increasing uncertainty in financial markets, the likelihood of an imminent change in monetary policy has decreased.

The decision by the U.S. Federal Reserve to cut rates ahead of the Bank of Japan’s meeting heightened concerns about the state of the U.S. economy and, consequently, the global economic situation.

Japan maintains existing interest rate

During the discussions at the Bank of Japan’s board of directors, it was noted that the rising uncertainty regarding the U.S. economic situation and the pace of the Federal Reserve’s rate cuts could negatively affect the yen’s exchange rate and the profitability of Japanese companies.

The meeting participants expressed differing views on the timing of rate hikes. While some board members continued to advocate for tightening monetary policy to prevent heightened inflation risks, most supported a more cautious stance, emphasizing the importance of carefully assessing the current economic situation.

At its September meeting, the Bank of Japan adopted a wait-and-see approach, maintaining its existing monetary policy at 0.25%. The central bank’s governor expressed readiness to delay interest rate hikes until more information about the global economy becomes available. Unlike the previous meeting, where the consensus leaned toward tightening monetary policy, the September gathering saw more caution and a desire for deeper analysis of economic risks.

Government change increases uncertainty in the Japanese market

The Bank of Japan has been actively normalizing its monetary policy this year but remains cautious due to global economic uncertainty and heightened volatility in financial markets. The regulator closely monitors incoming economic data and is ready to adjust its policy in line with changing conditions.

Experts expect further rate hikes this year, but they note that the pace of policy normalization will depend on various factors, including inflation expectations and the state of the real economy.

The departure of Prime Minister Fumio Kishida, who appointed Ueda and approved the Bank of Japan’s policy normalization efforts, adds uncertainty about the bank’s plans to raise interest rates.

Shigeru Ishiba, who was appointed the new Prime Minister on Tuesday, said on Sunday that Japan’s monetary policy should remain adaptive in line with current trends.

Economic data indicates a continued moderate recovery, with strong corporate profits supporting capital expenditures.