Bank of Japan Holds Interest Rates Steady as Yen Weakens

Investing.com -- The Bank of Japan (BOJ) decided on Thursday to keep its benchmark interest rate steady at 0.25%. This decision was made as financial and currency markets assess the impact of Japan's economic activities and prices.

Following the interest rate decision, the yen depreciated by as much as 1.27% against the dollar, dropping to 156.77, marking its lowest level in four months. Japan's stock index, the Nikkei 225, closed down 0.69% at 38,813 points.

The decision to maintain interest rates surprised economists who had anticipated a 25 basis point increase. In contrast, the U.S. Federal Reserve cut interests by 25 basis points on Wednesday, lowering the federal funds rate to a range of 4.25%-4.5%.

The BOJ announced that the decision to hold rates steady was made with a vote of 8 to 1. Board member Naoki Tamura voted in favor of a 25 basis point increase. The bank also remarked on the high uncertainties surrounding Japan's economic activities and prices. It noted that companies' behavior towards raising wages and prices has recently become more prominent, and the likelihood of exchange rate developments affecting prices is higher compared to the past.

BOJ President Kazuo Ueda stated in a subsequent press conference that if the bank waits too long to raise interest rates, it may have to accelerate future rate hikes. However, he added that the BOJ may not rush to increase rates due to only moderate growth in core inflation.

Ueda also noted that while the U.S. economy remains generally strong, there is uncertainty regarding the policies of the incoming U.S. administration, suggesting that their effects need to be examined more carefully.

The next BOJ meeting will take place shortly after Donald Trump is sworn in as U.S. President, on January 24.