Original Title: “Full Text of Bank of Japan Statement: 25 Basis Point Rate Hike, Considering Further Adjustments”
Source: Jinshi Data
On December 19, the Bank of Japan raised its benchmark interest rate from 0.5% to 0.75%, in line with market expectations. The interest rate level reached a 30-year high, marking the first rate hike by the Bank of Japan in 11 months since January 2025.
Full Text of Policy Statement
Changes in Monetary Market Operation Guidance
At today’s monetary policy meeting, the Bank of Japan’s Policy Committee unanimously voted to set the following guidance for monetary market operations during the inter-meeting period:
The Bank of Japan will guide the uncollateralized overnight call rate to remain around 0.75%.
In line with the adjustment to monetary market operation guidance, the Bank of Japan unanimously decided to adjust the interest rates applicable to its related measures.
(1) Applicable Rate for Complementary Deposit Facility
The applicable rate for the complementary deposit facility (i.e., the rate applied to the portion of financial institutions’ current account balances at the Bank of Japan, excluding required reserves) is 0.75%.
(2) Basic Loan Rate
The basic loan rate applicable under the complementary lending facility is 1.0%.
Japan’s economy as a whole is on a moderate recovery path, though some weaknesses persist in certain areas. Against the backdrop of wage trends, the labor market remains tight, and corporate profits are expected to stay generally high, even considering the impact of tariff policies.
In this context, taking into account the positions of both labor and management in the annual spring wage negotiations and firsthand information collected through the Bank of Japan’s head office and branches, it is highly likely that following robust wage increases this year, companies will continue to steadily raise wages next year, with a low risk of disruption to active wage-setting behavior.
Although uncertainties remain regarding the U.S. economy and the impact of trade policies across economies, these uncertainties have somewhat diminished. On the price front, as companies continue to pass on wage increases to sales prices, underlying consumer price index (CPI) inflation continues to show a moderate upward trend.
Based on recent data and firsthand information, it is highly likely that the mechanism of moderate wage and price increases will be sustained. Against this backdrop, the likelihood of achieving the baseline scenario in the latter half of the forecast period of the October 2025 “Outlook for Economic Activity and Prices” (Outlook Report), where underlying CPI inflation broadly aligns with the 2% price stability target, is increasing.
Given these developments in economic activity and prices, the Bank of Japan judges that it is appropriate to moderately adjust the degree of monetary easing from the perspective of sustainably and stably achieving the 2% price stability target. Following the policy rate adjustment, real interest rates are expected to remain significantly negative, and accommodative financial conditions will continue to strongly support economic activity.
Regarding future monetary policy operations, given that current real interest rates are significantly low, if the economic activity and price outlook outlined in the October 2025 Outlook Report materializes, the Bank of Japan will continue to raise policy rates and adjust the degree of monetary easing as economic activity and prices improve. With respect to the 2% price stability target, the Bank of Japan will implement monetary policy appropriately based on changes in economic activity, prices, and financial conditions, from the perspective of sustainably and stably achieving the target.
Japan’s Economic Activity and Prices: Current Situation and Outlook
Japan’s economy as a whole is on a moderate recovery path, though some weaknesses persist in certain areas. Overseas economies as a whole continue to grow moderately, but show some weakness in parts due to trade and other policies across economies. Exports and industrial production are generally flat on a trend basis, though affected by U.S. tariff increases.
Corporate profits remain generally high, and business sentiment remains favorable despite downward impacts from tariffs in the manufacturing sector. In this environment, business fixed investment shows a moderate upward trend.
Private consumption remains resilient against the backdrop of improving employment and income conditions, though affected by price increases. On the other hand, housing investment is declining.
Meanwhile, public investment remains broadly flat. Financial conditions remain accommodative.
On the price front, as wage increases continue to be passed on to sales prices, and influenced by factors such as rising food prices including rice, the year-on-year change in the CPI excluding fresh food has recently been around 3%. Inflation expectations are rising moderately.
Due to the impact of trade and other policies across economies, overseas economic growth is slowing, affecting the domestic economy through channels such as declining corporate profits. Japan’s economic growth is expected to remain moderate, but factors such as accommodative financial conditions are likely to provide support.
Thereafter, as overseas economies return to a growth path, Japan’s growth rate is expected to pick up. As the impact of rising food prices, including rice, gradually subsides and partly due to government measures to address price increases, the year-on-year change in the CPI excluding fresh food is expected to slow to below 2% by the first half of fiscal 2026.
Thereafter, as the growth rate picks up, labor shortages intensify, and medium- to long-term inflation expectations rise, underlying CPI inflation and the CPI excluding fresh food are expected to gradually increase, reaching levels broadly consistent with the price stability target in the latter half of the forecast period of the October 2025 “Outlook for Economic Activity and Prices.”
Risks to the outlook include: developments in overseas economic activity and prices under the influence of trade and other policies across economies, corporate wage and price-setting behavior, and movements in financial and foreign exchange markets. It is necessary to closely monitor the impact of these risks on Japan’s economic activity and prices.
