So, the Bank of Japan raised interest rates by 25 basis points to 0.5%. The key goal at their January meeting was twofold. Firstly, to avoid sounding too dovish, which could further weaken the yen, but equally to avoid sounding overly hawkish, which could lead to some disorderly market repricing. Overall, the Bank of Japan has managed to achieve policy normalization and it's been remarkable because they haven't been able to do this really in decades.
But with rates now at 0.5%, this is a psychologically very important level for the Bank of Japan because they haven't been able to raise interest rates over and above it since 1995. So a big question is where next for rates for the Bank of Japan, and how quickly could they raise interest rates further from here? Here, I think what we learned from the press conference, together with the Bank of Japan's recent publication on its broad monetary policy framework review, gives us a good degree of guidance.
So, firstly, we learned from the governor today that, you know, clearly they want to keep their options open in terms of interest rates and depending on the data. But in terms of that broad medium term outlook coming out of their policy framework review, gives a strong indication that the Bank of Japan is going to move very gradually from here to avoid tipping the economy back into deflation.
So, for us, that means, yes, rates are going up, but we really only expect one more rate hike later this year and probably not till the end of 2025, leaving rates at 0.75% by the end of 2025.