Bank of Japan Holds Policy Rate as Core Inflation Falls to Lowest Since November 2024

Japan

JAPAN: The Bank of Japan kept its policy rate steady at 0.5% on Friday, following a 7-2 majority vote, with dissenters proposing a hike to 0.75%. Japan’s core inflation, which excludes fresh food prices, fell to 2.7% in August, marking a third consecutive month of decline and the lowest level since November 2024. Headline inflation also dropped to 2.7% from 3.1% in July, while the “core-core” inflation rate, which strips out fresh food and energy, eased to 3.3% from 3.4%. Rice inflation, a key contributor to cost-of-living pressures, softened to 69.7% from July’s 90.7%, though it remains historically high. The BOJ noted that inflation expectations have risen “moderately” and that the effects of rising food costs are expected to wane. 

The BOJ’s decision underscores its cautious stance amid slowing inflation and global uncertainty – prioritizing stability over premature tightening. Despite calls for a rate hike as Japan’s headline inflation remains above the bank’s 2% target, key domestic demand metrics, particularly service price growth, remain below target. Factors such as corporate governance reforms, rising wages, and increased capital expenditure are supporting domestic consumption and productivity. The BOJ’s stance differs from the U.S. and Europe, where central banks are cutting rates as inflation eases, and the yen is expected to strengthen as interest rate gaps narrow. 

Source: CNBC