Japan's interest rate decision explained I FT World

Synopsis

In January, the Bank of Japan (BOJ) approaches a critical decision regarding interest rates, having recently moved to negative rates. The Japanese economy shows signs of gradual improvement, with job creation expected to lead to higher inflation. The Federal Reserve's neutral statement alleviates some pressure on the yen, allowing the BOJ to consider waiting before acting. However, this strategy poses risks, as a surge in the yen could negatively impact Japanese exports and business confidence. The government contemplates fiscal stimulus to support those affected by the earthquake in Kumamoto and debates whether to delay the planned consumption tax rise. The BOJ is unlikely to make any moves at its June meeting, which precedes elections, but may consider further easing by July if economic conditions worsen.