đź’´Â Highest level since 1995: The BOJ hiked interest rates to 0.75 percent on Friday. Further steps are on the table if wages and inflation continue to move in tandem. Real rates remain deeply negative.
💱 Yen stays calm: Despite the hike, the yen weakens as the move was fully priced in and Ueda stayed vague on “what’s next.” More expensive yen funding slows carry trades, while traders wait for clearer timing signals.
📉 Growth on shaky ground: Japan’s GDP shrank 0.6% q/q in Q3, or -2.3% annualized. With annual growth around 1.1%, the outlook remains fragile, forcing the BOJ into a tightrope walk between price stability and growth.
🦅 Fuel for the hawks: Consumer prices have stayed above 2% for 44 straight months, with core inflation around 3%. That strengthens the case for BOJ hardliners to keep tightening despite weak growth.
⏳ Next steps unclear: More rate hikes are possible, but not pre-committed. The BOJ sees the “neutral rate” somewhere around 1–2.5%, making Ueda’s guidance the next key market trigger.
Background
Japan is gradually exiting its ultra-loose policy era shaped by decades of deflation. Inflation is now proving sticky, driven by higher food and import costs and a weak yen, while the BOJ bets on a sustained wage–price cycle.
Higher rates are meant to cool demand and price pressures. But with fragile growth and heavy public debt, every step higher raises the risk of tipping the economy into recession.
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