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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%.

Japan: Policy Rate Held At 0.25% (Consensus 0.25%) in Dec-24

• The BoJ kept its policy rate at 0.25%, aligning with consensus expectations. Domestic recovery and stabilising inflation reduced the need for immediate policy adjustments.
• It forecasts inflation to stabilise near the 2% target by fiscal 2025, supported by an improving output gap and rising medium-term inflation expectations, despite external risks and commodity price fluctuations.
• The BoJ’s review of its monetary policy emphasised flexibility in achieving sustainable inflation, with a continued focus on balancing growth-supportive measures against evolving domestic and global risks.