State Street Investment Management said the decision leaves open the possibility of another increase within the next two meetings, once global trade conditions are clearer and volatility subsides. Nevertheless, the asset manager expects any shift to occur gradually over the coming year.
Political backdrop shifts focus
The meeting was closely watched because it followed a change at the top of Japan’s political leadership. Takaichi, a long-time advocate of expansive fiscal stimulus and accommodative monetary policy associated with the late Shinzo Abe’s “Abenomics,” has tempered earlier criticism of rate hikes since taking office. Still, her administration faces pressure from abroad to address yen weakness.
U.S. Treasury Secretary Scott Bessent met new Finance Minister Satsuki Katayama on Monday and emphasized that well-communicated monetary policy is essential to curb excessive exchange-rate swings, according to a Treasury statement. Higher interest rates typically bolster a currency by attracting overseas capital, while lower rates tend to have the opposite effect.
Former U.S. President Donald Trump has repeatedly argued that a soft yen provides Japan with an unfair trade advantage. During a March meeting, he told Takaichi that Tokyo should limit policies that depress the currency’s value.
Yen depreciation clashes with policy aims
Katayama stated in March that the yen’s “real” value should lie between ¥120 and ¥130 per dollar, implying room for an appreciation of roughly 26% from current levels. Yet analysts say Takaichi’s pledge of large-scale fiscal spending and ongoing monetary support could put renewed downward pressure on the currency. The outlook has fueled a so-called “Takaichi trade,” in which investors buy Japanese equities on the prospect of stimulus and sell the yen, pushing it beyond ¥150 per dollar.
In an online post on Wednesday, Bessent wrote that allowing the BOJ adequate policy autonomy will be vital for anchoring inflation expectations—a comment interpreted by market participants as encouraging patience rather than immediate intervention. Similar views have been highlighted in recent International Monetary Fund assessments, which stress the balance between price stability and currency volatility.
Inflation remains above target
Japan’s core consumer price index has hovered above 2% since mid-2021, driven by higher energy costs and a weaker yen that makes imports more expensive. Despite persistent overshoot, the BOJ continues to frame price gains as “cost-push” rather than demand-led, warranting precautious normalization. Policymakers have signaled they want to confirm that wage growth is durable before lifting borrowing costs materially.
Exports show uneven recovery
The decision also comes amid a mixed trade picture. National exports fell for four consecutive months before rebounding in September, but shipments to the United States remain subdued. A weaker yen can support exporters by enhancing price competitiveness abroad, yet global demand softness has limited the benefit so far.
What comes next
The central bank’s next meeting is scheduled for December, followed by another gathering in January. Analysts will monitor wage negotiations early next year, inflation dynamics, and any further guidance from Takaichi’s administration on fiscal measures. While the policy rate stayed unchanged this time, two dissenting votes indicate rising internal debate over the path forward, and observers widely anticipate at least one increase within fiscal 2025 if inflationary pressure proves resilient.
Crédito da imagem: Kazuhiro Nogi / AFP
