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Japan: Policy Rate Held At 0.5% (Consensus 0.5%) in May-25

• The BoJ held the policy rate steady at 0.5%, in line with expectations, while market sentiment shifted more dovishly, reducing the perceived likelihood of further rate hikes.
• Growth and inflation forecasts for 2025–26 have been revised down, with underlying inflation expected to remain weak and only gradually return to target levels as wage pressures intensify.
• Despite maintaining a tightening bias, the BoJ’s emphasis on downside risks and its data-dependent approach suggests a slow and cautious path toward further policy normalisation.

Japan: Policy Rate Held At 0.5% (Consensus 0.5%) in Mar-25

• The Bank of Japan held its uncollateralised overnight call rate at around 0.5%, in line with expectations, reflecting a moderate economic recovery and sustained inflationary pressures.
• Core CPI inflation remains at 3.0-3.5% year-on-year, with underlying inflation expected to gradually rise towards the BoJ’s target by 2025, driven by a tightening labour market and wage-price dynamics.
• The BoJ remains data-dependent, with policy direction contingent on wage growth sustainability, yen depreciation effects, and global economic risks, suggesting a cautious approach to normalisation.

Heavy Metal Trade War

• Volatility in US trade policy continues a cleaner tightening trend against China in the well-established tech war. Tariffs are a tool, but so are export restrictions.
• China expanded restrictions on rare earth mineral exports to license critical materials like tungsten. The West lacks friendly suppliers and struggles to develop alternatives.
• European defence investments may flounder. Japan and Korea may also suffer, so they can indirectly frustrate the US. Aggressive trade policy hits volumes as well as prices.

By Philip Rush

Japan: 25bp Rate Hike To 0.5% (Consensus 0.5%) in Jan-25

• The BoJ raised its policy rate by 25 basis points to 0.5%, consistent with market expectations and reflecting a gradual recalibration of monetary policy as inflationary pressures stabilise near 2.5–3.0% in the medium term.
• Persistent wage growth, yen depreciation, and improving labour market conditions underpin inflation forecasts. However, due to commodity price volatility and exchange rate sensitivity, inflation risks are tilted to the upside.
• While financial conditions remain accommodative, future rate hikes are likely if inflation expectations and wage-price dynamics sustain alignment with the BoJ’s medium-term stability target of 2%.