Photo/Illutration Bank of Japan Governor Kazuo Ueda speaks at a news conference on Dec. 19. (Usen To)

The Bank of Japan on Dec. 19 voted to keep policy interest rates unchanged following a U.S. rate cut, adding downward pressure on the Japanese currency against the dollar.

BOJ Governor Kazuo Ueda said the bank plans to consider an interest rate hike after assessing economic policies of the second Trump administration and wage trends in the “shunto” labor negotiations.

“We want to go up another ‘notch’ before reaching a decision on the next rate increase,” he told a news conference after a policy board meeting on Dec. 19.

At the meeting, the central bank maintained the target for the uncollateralized overnight call rate, a rate commercial banks charge on loans to each other, at about 0.25 percent.

BOJ policymakers have held policy interest rates steady at three consecutive meetings after raising the target from about 0-0.1 percent in July.

In March, the BOJ ended its 11-year ultra-easy monetary policy and lifted the negative interest rate policy, which marked its first interest rate hike in 17 years. 

The BOJ believes that the outlook for domestic economic activity and prices remains positive, with the consumer price index staying above its target of 2 percent.

At a news conference after the previous policy board meeting in October, Ueda said the bank will consider an interest rate hike if developments in economic activity and prices are in line with its outlook.

Some BOJ officials said the bank does not have to rush to increase interest rates, however.

They said the yen’s depreciation against the dollar has recently leveled off, easing upward pressure on prices even as interest rates remain at low levels.

Hours before the BOJ meeting, the U.S. Federal Reserve Board lowered policy interest rates by 0.25 percentage point on Dec. 18, its third rate cut in a row.

But Fed officials also said they are now projecting only two rate cuts in 2025, two fewer than they had expected.

While the yen weakened on expectations that U.S. interest rates will remain at relatively high levels, the BOJ apparently judged that impacts on exchange rates would be limited.

Investors sold the yen and bought the dollar in foreign exchange trading in Tokyo on Dec. 19.

The Japanese currency hit the 156-yen level against the dollar at one point after the BOJ meeting.

After Donald Trump returns to the White House in January, U.S. economic policies could adversely affect the bottom line of Japanese companies.

The U.S. president-elect has said he will impose high tariffs on goods from Mexico and Canada, where Japanese manufacturers operate export bases for the U.S. market.

If Japanese companies continue to raise wages by a large margin at the annual shunto negotiations next spring, a virtuous cycle of wages and prices is expected to accelerate, setting the stage for the BOJ’s interest rate hikes.

Top executives of large corporations will likely indicate expected rates of wage increases from January ahead of the negotiations.

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