Takuji Aida, economic adviser to Japanese Prime Minister Sanae Takaichi, cautioned on Monday that it would be “quite risky” for the Bank of Japan (BoJ) to raise interest rates in December.
Aida suggested that a rate hike might be more feasible in January, provided the BoJ can anticipate solid economic growth in fiscal 2026.
Market Reaction
Following Aida’s comments, the USD/JPY pair traded 0.33% higher at 153.93, supported by a risk-on market sentiment.
Bank of Japan Overview
- What is the BoJ?
The Bank of Japan is the country’s central bank, tasked with issuing banknotes, managing monetary policy, and maintaining price stability, targeting inflation around 2%. - Policy Background
Since 2013, the BoJ has pursued ultra-loose monetary policy using Quantitative and Qualitative Easing (QQE), including negative interest rates and controlling 10-year government bond yields. In March 2024, the BoJ lifted rates, moving away from its ultra-loose stance amid rising inflation. - Impact on the Yen
Years of massive stimulus led to Yen depreciation, especially compared with other major currencies whose central banks raised rates aggressively. The BoJ’s policy contributed to a widening interest rate differential, weakening the Yen. The move in 2024 to tighten policy partly reversed this trend. - Reason for Policy Shift
Rising inflation above the 2% target, driven by a weaker Yen, higher global energy costs, and expectations of increasing wages, prompted the BoJ to begin unwinding its ultra-loose stance.
Summary:
Japan’s economic adviser warns against a December BoJ rate hike, suggesting January may be safer if economic growth prospects strengthen. The market responded with a modest USD/JPY rally, while the BoJ’s gradual exit from ultra-loose policy continues to influence Yen dynamics.