On Thursday, the Bank of Japan maintained its benchmark interest rate at 0.75%, keeping its policy unchanged for the second consecutive meeting. However, one committee member proposed a motion to raise interest rates, and the central bank's statement clearly listed the Middle East conflict and oil price fluctuations as risks to the outlook, indicating that the path to normalizing monetary policy faces new external disruptions.
The decision to hold steady aligns with the expectations of all 51 economists surveyed by Bloomberg, reaffirming the basic judgment of a moderate recovery in the Japanese economy. It noted that the economy is expected to continue growing moderately, inflation expectations have risen moderately, and the mechanism of moderate synchronization of wages and prices is likely to continue.
It is worth mentioning that the decision was passed with a vote of 8 to 1, with committee member Takeda Akira casting the dissenting vote, proposing to raise the short-term interest rate target from 0.75% to 1.0%, and pointing out that the price stability target has been largely achieved. The second-round effects of price increases triggered by overseas situations have tilted the risk of Japanese prices upward. The statement maintained a gradual rate hike stance, clearly indicating that if economic and price trends align with forecasts, the policy interest rate will continue to be raised.
After the announcement, the yen maintained its upward trend against the dollar, rising about 0.2% to 159.61, while the Nikkei index futures showed little volatility, having previously fallen about 2.33%. Bank of Japan Governor Ueda Kazuo will hold a press conference at 14:30, and foreign exchange traders will closely monitor his wording, as his cautious statements about holding steady in the past have often put downward pressure on the yen.
<h2>Middle East Situation and Oil Prices as Core Risk Variables</h2>
The statement emphasized the potential impact of external risks on the inflation outlook. The Bank of Japan pointed out that financial markets are showing unstable trends due to the impact of the Middle East conflict, with crude oil prices rising sharply, and future trends need to be closely monitored.
The statement also noted that the year-on-year increase in core CPI may temporarily slow to below 2%, but will accelerate again due to rising oil prices, and the potential impact on inflation also needs to be closely watched. The risks facing the outlook for the Japanese economy were clearly listed as the situation in the Middle East, oil price trends, and market dynamics including foreign exchange trends.
<h2>Minority Rate Hike Proposal Reflects Internal Disagreement</h2>
Takeda Akira's dissenting vote was a key highlight of this meeting. He not only proposed raising the short-term interest rate target to 1.0% but also voted against the statement regarding the price outlook, believing that the level of CPI increase, including potential CPI inflation, has largely reached the price stability target, and disagreed with the majority of committee members on the characterization of the current inflation situation.
Takeda Akira's position indicates that there are differences within the Bank of Japan regarding the pace of interest rate hikes. Although his proposal was defeated by a majority vote, this voting result may provide the market with a forward-looking signal regarding the pace of policy normalization, and will lead to more cautious interpretations of Ueda Kazuo's press conference wording.
The Bank of Japan stated that it will appropriately implement monetary policy from the perspective of sustainably and stably achieving the 2% inflation target, and will continue to raise the policy interest rate based on improvements in the economy and prices. This statement continues the previous guidance for gradual rate hikes and does not signal an early tightening

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- On Thursday, the Bank of Japan maintained its benchmark interest rate at 0.75%, marking the second consecutive meeting without policy changes, although one committee member proposed an increase.  
- The decision aligns with the expectations of all 51 economists surveyed by Bloomberg, emphasizing a gradual recovery in Japan's economy amid risks from Middle Eastern conflicts and fluctuating oil prices.  
- While the decision passed with an 8 to 1 vote, dissent highlighted internal disagreements regarding the pace of interest rate hikes, with the central bank signaling a cautious but progressive approach to policy normalization.

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The Bank of Japan remains on hold as expected, while the situation in the Middle East and oil prices become the biggest variables for inflation outlook!