Key Facts
• October 27: Nikkei Stock Average surpasses ¥50,000 for the first time.
• October 31: Nikkei closes at ¥52,411, up ¥1,085 from the previous day.
• October 27: U.S. Treasury Secretary Bessent meets Japan’s Finance Minister Satsuki Katayama.
• October 30: Bank of Japan (BOJ) keeps policy interest rate at 0.5% for the 6th consecutive meeting.
• October 29: Bessent posts on social media urging Japan to give BOJ policy flexibility.
• Nominal effective exchange rate (2020 baseline = 100): Japan at 74.4, Eurozone at 114.3.
• Crude oil price changes since 2020 (in local currencies): Japan +37%, U.S. 0%, Euro -4%.
• BOJ Governor Kazuo Ueda signals potential rate hike in January 2026 after spring labor negotiations.
• U.S. Federal Reserve cuts interest rates by 0.25% to 3.75–4% on October 29.
• BOJ inflation forecast: Core CPI to remain above 2% through fiscal 2026.
Summary
Japan faces a unique economic challenge as low interest rates drive yen depreciation, leading to higher gasoline prices and inflation. Despite external pressure from U.S. Treasury Secretary Bessent, the Bank of Japan (BOJ) maintained its 0.5% policy interest rate during its October 30 meeting. The BOJ cited global economic uncertainties and the need for more data, particularly from spring labor negotiations, before considering a rate hike. Meanwhile, Japan’s nominal effective exchange rate remains significantly weaker than other major currencies, exacerbating the impact of rising crude oil prices. Analysts suggest January 2026 as the most likely timing for a rate hike, though December 2025 remains a possibility depending on U.S. Federal Reserve actions. The BOJ’s inflation forecast indicates core CPI will stay above its 2% target for the next four years, raising questions about the sustainability of its current monetary policy. The government faces mounting pressure to address the yen’s weakness, which continues to burden households with higher energy and food costs.
