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(Bloomberg) -- The Bank of Japan kept its monetary policy settings unchanged as it waits a little longer before its next move, with a dissenter’s proposed rate increase suggesting momentum for another hike is building.
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Governor Kazuo Ueda’s policy board left its benchmark rate at around 0.25%, according to a statement Thursday, an outcome expected by more than half of economists surveyed by Bloomberg. The yen weakened against the dollar while Topix erased losses after the decision.
Board member Naoki Tamura voted against the stand-pat decision, while proposing a rate hike to 0.5%. He said that the economy and prices are moving in line with expectations, and there are increasing upside risks for inflation. Although he was voted down by the rest of the board, his proposal suggests the board may be gearing up toward its next hike.
Ueda is searching for the right moment for his third rate increase, with recent economic indicators showing inflation is moving in line with the BOJ’s projections — a prerequisite for a rate hike. Since taking the helm of the central bank, the governor has been looking to normalize monetary policy after years of experimentation, a mission reinforced by a lengthy policy review also released Friday that emphasized the importance of interest rates.
“They could have hiked this time if they wanted to, and there’s likely to be a rate increase in January,” said Toru Suehiro, chief economist at Daiwa Securities. “The BOJ chose to wait and see partly because it wants to see what the economic policies of the new US administration will be like.”
The yen weakened past the key level of 155 versus the dollar after the status-quo vote, sliding as much as 0.4% to 155.47. Rate hike bets had receded in recent weeks, contributing to a six-day losing streak in the yen through Monday, its longest stretch of declines versus the dollar since June.
The Topix erased losses of as much as 1.4% earlier in the day, after the Federal Reserve lowered rates on Wednesday but reduced its forecast for cuts in 2025.
The BOJ may also have been reluctant to raise rates in December given the potential for bad optics. Prime Minister Shigeru Ishiba’s minority government is currently negotiating with an opposition party wary of early rate hikes to ensure support for next year’s annual budget.
There’s also the memory of perceived missteps in the past. Raising interest rates three times in one calendar year hasn’t happened in Japan since 1989, a tightening cited by economists among the factors that led to the bursting of the nation’s asset bubble.