The Bank of Japan has left its key rates unchanged again, a decision that is not obvious. While inflation is gradually moving away from the 4.0% peak it experienced at the beginning of the year, it is still 3.6%, an uncomfortably high level for consumers accustomed for decades to stable, and sometimes even falling, prices.
When called upon to raise rates for the second time in 2025, it preferred to temporize, knowing full well that, with oil prices falling, inflation could calm down on its own.
Trade tariffs and economic growth at stake
This cautious approach is not surprising. Japan is experiencing uncertainty on the trade front, impacted like many others by threats from Washington.
It does not want to increase the tariffs on its products by adding a more expensive yen, which would make its exports even less competitive.
In addition, the economy is growing (+0.6% quarter-on-quarter in the last quarter of 2024, +1.2% year-on-year), but whose dynamism would quickly erode in the event of more expensive credit.
Yen at its lowest against the euro
The markets have understood this dilemma. After betting on higher Japanese rates, which led to an appreciation of the yen on the foreign exchange markets, they now say that the Japanese authorities will only resort to this solution if they have little choice. The yen has depreciated again, and it now takes 164JPY to buy €1, the lowest level for the Japanese currency since the beginning of the year.
Despite the cheap currency, the outlook for this market remains highly uncertain. We are not investing in it at the moment. See our latest portfolio suggestion.
The Japanese yen to euro
(In JPY for 1€)
The Bank of Japan is determined to wait for inflation to subside. Investors have understood this, and the yen is falling again.