The Bank of Japan (BoJ) has opted to maintain its current interest rate at approximately 0.5 percent, which has triggered a notable decline in the yen’s value against the US dollar. This decision, made by the central bank’s Monetary Policy Committee, reflects a division among its members, who voted 7-2, marking the second month in a row of such a split.
During a press conference, BoJ governor Kazuo Ueda expressed that he holds “no preconceived views on the necessity or timing” regarding any potential rate increase. He indicated that the bank does not perceive an immediate risk of being “behind the curve.” Ueda emphasized that the BoJ would continue to evaluate the economic outlook and inflation risks, assuring that appropriate policy decisions would be made at each meeting.
Despite the predictability of the rate decision, analysts interpreted Ueda’s cautious remarks as a signal that further depreciation of the yen might occur. The currency fell by 0.6 percent against the dollar initially, reaching ¥153.12 and later plummeting to an eight-month low. Benjamin Shatil, a senior Japan economist at JPMorgan, suggested that the BoJ’s inaction could mean the yen will serve as a pressure release for the market, with the possibility of hitting fresh lows. He also noted the risk that a rate hike could be postponed until early 2026.
In the stock market, the Nikkei 225 index exhibited volatility, initially climbing 0.6 percent to reach an all-time high of 51,654 before retracting those gains, only to rally again by the close. Over the past month, the benchmark index has risen more than 14 percent. Neil Newman, a Japan strategist at Astris Advisory, revised his target for the index to reach 66,500 by the end of next year, though he cautioned that the BoJ’s indecision might slow the index’s next phase of growth.
This policy decision follows the recent inauguration of Prime Minister Sanae Takaichi, who has a history of criticizing the central bank’s rate hikes, even as she pledges to combat rising prices. The BoJ also released an economic outlook indicating modest growth amidst the uncertainty surrounding global economic conditions and evolving trade policies. The bank forecasts that annual inflation, excluding fresh food prices, is likely to decline below the 2 percent target through the first half of the 2026 fiscal year, attributing some of this potential moderation to high rice prices stabilizing.
Shoki Omori, chief desk strategist at Mizuho, speculated that the BoJ might consider a rate increase during its December policy meeting, particularly in light of increasing pressure from US Treasury Secretary Scott Bessent, who recently concluded a three-day visit to Japan. Bessent suggested that Takaichi’s administration should allow the BoJ the “policy space” necessary to combat inflation, remarking earlier that Japan’s central bank was “behind the curve.” Ueda refrained from commenting on Bessent’s statements.
In contrast, Stefan Angrick, a senior economist at Moody’s Analytics, noted that the yen’s depreciation appears misaligned with current policy developments in Japan and abroad. He pointed out that typically, a new government announcing increased capital expenditure would bolster growth and strengthen the currency. However, he observed that the yen seems increasingly disconnected from its economic fundamentals.
