The Bank of Japan (BOJ) yesterday raised its benchmark interest rate to the highest in 30 years and said more increases are in the pipeline if conditions allow, in a sign of growing conviction that it can attain the stable inflation target it has pursued for more than a decade.
Bank of Japan Governor Kazuo Ueda’s policy board increased the rate by 0.2 percentage points to 0.75 percent, in a unanimous decision, the bank said in a statement.
The central bank cited the rising likelihood of its economic outlook being realized.
Photo: Bloomberg
The rate change was expected by all 50 economists surveyed by Bloomberg.
The central bank made it clear that the hiking cycle would continue, saying that it intends to keep raising borrowing costs if its economic outlook is realized and the chances of that happening are increasing.
It also said that underlying inflation is continuing to rise moderately.
“We’ll keep making appropriate decisions at each policy meeting,” Ueda told a news conference. “The pace at which we adjust our rate will depend on the state of the economy and prices.”
While market participants were closely watching whether Ueda would give further clarity on where he sees the neutral rate — the level at which the policy rate is neither stimulative nor restrictive — the governor continued to say that it is difficult to judge where that rate might precisely be.
The central bank sees the rate as roughly somewhere between 1 percent and 2.5 percent.
“Of course it would be great if we can have a better idea of where the neutral rate is, but it’s not easy,” Ueda said, adding that the current rate was still below the lower end of the estimated range.
“The decision statement describes rates as “at significantly low levels,” even as they edge toward the bank’s 1 percent estimate for the lower bound of neutral,” Bloomberg analyst Taro Kimura said.
“That suggests the bank now sees neutral as higher, giving it room to tighten further,” Kimura said.
The yen weakened past ￥156.80 against the US dollar after Ueda spoke, suggesting that traders were looking for stronger messaging around further hikes ahead.
Japanese government bond yields rose after the decision, with the yield on the benchmark 10-year bond climbing above 2 percent and hitting the highest level since 1999.
The Nikkei 225 Stock Average had earlier closed 1 percent higher.
The policy change underscored Ueda’s determination to keep raising rates as inflation gradually embeds itself into the economy in a major shift from decades of weak prices following the early 1990s bursting of an asset bubble.
Earlier yesterday, data showed that a key gauge of consumer prices rose 3 percent last month, extending the streak of months at or above the central bank’s 2 percent inflation target to 44.
“I think the BOJ will continue raising rates at a pace of around once every six months or so,” Kazuo Momma, a former executive director at the central bank, said on Bloomberg TV shortly after the decision, a comment largely in line with market consensus.
“Maybe two rate hikes in 2026 and one more in 2027, reaching the level of 1.5 percent,” Momma added.
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