US and Japan Hike Rates While Taiwan Holds for Tenth Time
The Federal Reserve and Bank of Japan raised rates by 25 basis points, while Taiwan's central bank kept its policy rate steady for a tenth consecutive meeting.
The U.S. Federal Reserve raised the federal funds rate target range to 3.75%–4.00%. This marks the first increase since July 2023. The Bank of Japan also lifted its benchmark rate by 25 basis points to 1.25%. These moves align with expectations of tighter monetary policy in both economies. In contrast, Taiwan’s central bank held its policy rate unchanged. This is the tenth consecutive meeting without a rate change. The central bank cited distinct economic conditions as the reason for its divergence. Governor Yang Chin-long stated that the institution is walking its own path.
Taiwan’s decision surprised some market participants. The bank simultaneously eased two selective credit controls on the property market. Yang explained that the issue is not a shortage of money but uneven distribution. Price-based tools like rate hikes impact first-time homebuyers and traditional industries directly. Therefore, the bank relies on quantity-based tools such as monetary aggregates and credit controls. This approach allows for more targeted management of liquidity in the economy. The bank aims to prevent asset bubbles without stifling broader economic activity. This strategy has been in place since 2024.
Fed Signals Hawkish Stance Ahead
Chair Kevin Warsh described the hike as taking back some accommodation. He stated that inflation remains too high and has persisted for too long. The latest dot plot shows eight officials expect further hikes next year. Six officials project rates will remain unchanged. Four officials anticipate cuts. Officials raised their longer-run rate estimate by 0.1 percentage points to 3.2%. This indicates a higher neutral rate for the economy. Warsh dismissed pressure from President Donald Trump to cut rates. He stated he had nothing to offer on the matter. Trump maintained confidence in Warsh despite the disagreement.
Yen Weakens Despite Rate Hike
The yen fell rather than rose after the Bank of Japan’s decision. The currency weakened by up to 1% intraday to 157.66 per U.S. dollar. Market participants viewed the move as not hawkish enough. This is the BOJ’s second hike after its June move. It marks the shortest interval between increases since 1990. Governor Kazuo Ueda has now presided over six rate hikes. This is the most by any BOJ governor in at least half a century. Ueda cited the Middle East situation as a key factor in timing. He declined to elaborate on exchange rate pressure. He emphasized that monetary policy is not intended to stabilize the yen.
Taiwan Eases Property Market Restrictions
The central bank raised the loan-to-value cap on second homes to 70%. This is part of a broader easing of credit controls. The bank believes current market challenges require quantity-based management. Rate hikes would have a direct impact on specific groups like first-time buyers. By adjusting credit limits, the bank can manage liquidity more precisely. This approach fits the bank’s strategy since 2024. The goal is to maintain financial stability without broad economic disruption. The central bank continues to monitor asset prices and credit growth. This dual approach allows for flexibility in response to changing conditions.
