Bank of Japan Raises Key Rate to 0.25%

Bank of Japan Raises Key Rate to 0.25%

London, 31 July 2024

The Bank of Japan (BoJ) raised its key short-term interest rate at its July 2024 meeting to around 0.25% from the prior range of 0 to 0.1% it set in March.

Picture by: Wikimedia

The central bank added it would reduce the monthly bond-buying to JPY 3 trillion in January-March 2026 from the current pace of around JPY 6 trillion to pursue a more normal monetary policy. Starting August, the BoJ will offer to buy JPY 400 billion of 5 and 10-year JGBs at each of its operations, removing the ongoing offer range of JPY 400-550 billion. The changes are part of the central bank's plan to lower its almost USD 5 trillion balance sheet and slowly retreat from the bond market.

The BoJ predicted in a quarterly outlook that core inflation for FY 2024 would be less than April's estimates of 2.8%, likely falling around 2.5%. About 2% will be the amount for FY25 and FY26. In terms of GDP, officials revised down their estimate of growth to 0.6% from 0.8% in 2024 based on statistical evidence. The bank kept its GDP forecast for FY25 and FY26 at 1.0%.

Forecast

The Japanese benchmark interest rate was last observed to be 0.25 percent. By the conclusion of this quarter, analysts and Trading Economics global macro models predict that Japan's interest rate will be 0.25 percent. Our econometric models predict that the Japan Interest Rate will trend at 0.40 percent in 2025 and 0.60 percent in 2026 over the long run.

(Source: Trading Economics)