Bank of Japan Maintains 0.75% Interest Rate Unchanged, Monetary Policy Maintains Cautious Stance

Xinhua Finance Beijing, March 19 — (Cui Kai) Amid escalating Middle East conflicts and increased volatility in global financial markets, the Bank of Japan (BOJ) decided at its March 19 monetary policy meeting to keep the short-term policy interest rate target unchanged at 0.75%. This is the second consecutive meeting where the BOJ has chosen to hold steady, in line with market expectations.

Voting Results Show Divergence; Disagreement on Inflation Outlook

The monetary policy committee’s vote was 8 in favor and 1 against. The dissenting vote came from committee member Takada So. Takada proposed raising the short-term interest rate target from 0.75% to 1.0%, citing concerns that overseas developments could trigger second-round effects on prices, risking upward pressure on Japan’s inflation. He believes that the consumer price index (CPI), including potential inflation, has basically reached the price stability target. However, this rate hike proposal was rejected by a majority.

The BOJ stated after the meeting that it will implement monetary policy appropriately from the perspective of sustainably and stably achieving the 2% inflation target. The statement noted that if economic and price trends align with forecasts, the BOJ will continue to raise policy rates as economic activity and prices improve.

Moderate Economic Recovery, External Risks Significantly Rising

The BOJ remains cautiously optimistic about the current economic situation. The statement said Japan’s economy is recovering moderately overall, though some areas remain weak; exports and industrial production are generally stable, corporate profits remain high, and while manufacturing has been affected by tariffs, the overall recovery trend persists. The BOJ pointed out that domestic inflation expectations have risen modestly, and a mechanism of gentle, synchronized wage and price increases is expected to continue. Core consumer inflation may temporarily fall below 2%, but will likely accelerate again due to rising oil prices. The BOJ also explicitly mentioned that government measures to address rising prices are one of the reasons for the recent slowdown in CPI growth.

However, external uncertainties have become a key focus of this decision. The BOJ identified risks including the Middle East situation, fluctuations in crude oil prices, foreign exchange movements, and overall market dynamics. With ongoing escalation of Middle East conflicts and significant increases in international oil prices, Japan, heavily dependent on Middle Eastern oil imports, faces increased inflationary pressure. Global financial and capital markets have also experienced sharp volatility. Goldman Sachs estimates that if the Strait of Hormuz oil transit disruptions last for 60 days, Japan’s economy could experience a temporary contraction. This potential risk has been closely monitored by the BOJ. Goldman Sachs believes that a 60-day disruption in the Strait of Hormuz could lead to a temporary economic slowdown in Japan.

Exchange Rate Fluctuations and Intervention Expectations

Following the announcement, financial markets responded relatively calmly. The USD/JPY exchange rate briefly rose slightly from 159.58 to around 159.70; earlier, after Federal Reserve Chair Powell indicated that there would be no rate cuts before inflation declines, the yen weakened overnight.

Regarding recent yen depreciation concerns, Japanese Finance Minister Shunichi Suzuki stated that authorities are fully prepared to act if necessary. She noted that, with the BOJ governor holding a press conference today, it could be a day when currency manipulators become active. However, market strategists believe intervention thresholds are high. Given rising oil prices and solid US economic data supporting the dollar, it may be more difficult for authorities to justify intervention.

Policy Outlook: Focus on Governor Ueda’s Press Conference

The BOJ signaled a clear hawkish stance, emphasizing that it will implement monetary policy from the perspective of sustainably and stably achieving the 2% inflation target; if economic activity and price trends align with the January outlook report, the BOJ will continue to raise rates as conditions improve. Multiple market analysts interpret that expectations for further rate hikes by the BOJ remain intact, with the possibility of a rate increase in April not ruled out. Nomura Securities analysts also suggest that the probability of a rate hike in April is relatively higher, though the number of future hikes remains uncertain.

Market attention has now shifted to the press conference at 14:30 by BOJ Governor Kazuo Ueda. According to sources, the BOJ is still expected to raise rates, with the possibility of a hike in April remaining.

Nomura Securities analyst Wilcox stated that while it’s difficult to predict whether the BOJ will raise rates more than once, the likelihood of a rate hike in April is higher. Investors are trying to glean any clues about the timing of rate increases from the governor’s remarks to navigate the complex global macroeconomic environment.

Japan’s Chief Cabinet Secretary Hirokazu Matsuno emphasized before the meeting that the specific monetary policy approach should be determined by the BOJ. Even after the Middle East conflict erupted, the government’s stance of leaving monetary policy decisions to the BOJ remains unchanged. He hopes the BOJ will work closely with the government to implement appropriate policies aimed at achieving a sustainable 2% inflation driven by wage growth, rather than inflation caused by cost-push factors.

Editor: Ma Mengwei