Assessing the Impact of U.S. Tariffs
"Market Expects Rate Hike as Early as October"
The Bank of Japan (BOJ) kept its benchmark interest rate unchanged at 0.5% for the fifth consecutive time on September 19. Externally, the United States' tariff policies, and internally, the upcoming Liberal Democratic Party leadership election next month, appear to have prompted the BOJ to adopt a cautious stance rather than lowering rates prematurely.
The Bank of Japan decided to maintain its short-term policy rate, the benchmark interest rate, at its current level during the Monetary Policy Meeting held over the past two days.
As a result, the benchmark interest rate remains at 0.5% for the fifth consecutive time. However, two members of the committee expressed the view that the rate should be raised by 0.25 percentage points to 0.75%.
The reasons cited for holding rates steady include uncertainties stemming from U.S. tariff policies and the need to monitor the impact of the U.S. economy on Japan's economy. With signs of a slowdown in U.S. employment, a downturn in the U.S. economy could have a significant impact on Japan.
The Bank of Japan stated, "While there are some signs of weakness in the economy, it is recovering moderately," and assessed that "uncertainty in the global economy remains high due to the development of trade policies in various countries."
Previously, on September 2, Bank of Japan Deputy Governor Ryozo Himino stated, "It is necessary to pay closer attention to the possibility that the impact of tariffs may increase for the time being."
The BOJ is also closely watching domestic politics ahead of the Liberal Democratic Party leadership election scheduled for October 4. Analysts note that the new administration's economic and fiscal policies could influence financial markets.
Nihon Keizai Shimbun (Nikkei) reported that while the market expects a rate hike as early as October, some believe that the hike could be delayed until the end of the year or early next year depending on political developments.
In March last year, the Bank of Japan ended its negative interest rate policy for the first time in 17 years, then raised the benchmark rate from 0-0.1% to 0.25% in July, and to 0.5% in January this year, maintaining that level for about eight months.
On this day, the Bank of Japan announced the start of sales of its holdings in exchange-traded funds (ETFs) and real estate investment trusts (REITs). To mitigate market shocks, the BOJ will limit annual ETF disposals to approximately 330 billion yen (book value, about 3.1217 trillion won), and REIT disposals to about 5 billion yen per year, spreading out the timing of sales. In March last year, the BOJ decided to halt additional purchases of ETFs and REITs, which it had been acquiring since 2010.
According to Nikkei, as of the end of March this year, the BOJ’s ETF holdings amounted to 37 trillion yen at book value and 70 trillion yen at market value.
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