The central bank raised its key rate to 0.5%, compared to 0.25% previously, at the end of a two-day meeting.
The Bank of Japan (BoJ), which began normalizing its monetary policy in 2024, raised its rates again on Friday in the face of persistent inflation, despite a fragile economy and the specter of trade tensions revived by Donald Trump.
The central bank, at the end of a two-day meeting, raised its key rate to 0.5%, compared to 0.25% previously: an increase of 25 basis points in line with analysts’ expectations and of an unprecedented magnitude. for 18 years.
In order to counter the return of inflation in the archipelago over the past two and a half years, the institution began tightening its rates in March 2024, after ten years of ultra-accommodating monetary policy where they had remained almost zero.
However, after raising its rates twice during the year, the BoJ kept them unchanged in December, arguing “high uncertainties” about activity and prices, and the unpredictability of Donald’s future policies. Trump.
The Republican magnate, who returned to the White House on Tuesday, threatens drastic customs duties targeting China in particular, while appearing to open the door to negotiations.
Conversely, the internal inflationary threat persists: the rise in consumer prices in Japan (excluding fresh products) accelerated to 3% year-on-year in December, boosted by the surge in rice and energy prices. , according to figures published Friday.
Core inflation, adjusted for volatile energy and fresh food prices, remained at 2.4%. Levels beyond the 2% target set by the central bank.
Yen under pressure
Blasted in July after a surprise rise in rates which sent the Tokyo Stock Exchange tumbling, the BoJ had this time largely prepared the ground, with several concerted speeches from its leaders in recent weeks.
The institution will “reduce its monetary support despite a poor series of economic indicators” due to “higher than expected inflation figures” but also the weakening of the yen, according to Moody’s Analytics.
The Japanese currency is under pressure against a dollar still boosted by the high rates of the American Federal Reserve (Fed). If a weakened yen helps exporting groups, it makes products imported into the archipelago more expensive… and fuels inflation.
-An increase in BoJ rates makes the Japanese currency slightly more profitable, which jumped by more than 0.5% against the dollar around 04:30 GMT after the decision.
Another key factor is the revaluation of salaries, which is the subject of extensive negotiations. The Rengo trade union confederation, which in 2024 achieved a record increase since 1991, is targeting a similar increase of around 5% this year.
“Many firms have indicated that they will continue to significantly increase salaries during the spring negotiations,” enough to continue to push inflation, the BoJ explained on Friday.
The institution, which is also counting on a persistent increase in the price of imported products due to the weak yen, anticipates inflation (excluding fresh food) “around 2.5%” for the Japanese budget year 2025/26 starting in April ( against 1.9% previously expected).
“Even if part of the recent inflationary fever reflects the surge in rice prices, inflation in services and processed foods is also strengthening,” warns Marcel Thieliant, analyst at Capital Economics.
According to him, we should expect further rate increases “over the coming months” if inflation does not fall sustainably to 2%.
Consumption at half mast
There is general agreement that the normalization of monetary policy will continue despite the still precarious economic situation. Growth in the world’s fourth-largest economy fell to 0.2% in the third quarter of 2024.
And Japanese household consumption fell in November for the fourth consecutive month, the sharp rise in wages not being enough to catch up with inflation.
To reverse the trend, Prime Minister Shigeru Ishiba adopted in December a colossal recovery plan equivalent to 136 billion euros intended to boost purchasing power: packages for low-income households, fuel subsidies, drop in income taxable…
However, “an increase of only 0.25 basis points in BoJ rates will not weigh on the economy: the real interest rate would still be in negative territory, because consumer prices are above 2% “, the monetary environment therefore remaining “accommodating” for businesses, Ko Nakayama, economist at Okasan Securities Research, explains to AFP.
