The Bank of Japan, under Governor Ueda (植田), raised its policy rate for the first time in three months and indicated that it aims to contain inflationary pressures from higher crude oil prices and yen depreciation. The BOJ plans to make flexible decisions on the pace of future rate hikes, and market expectations of an additional hike in December remain alive.
The Bank of Japan raised rates again just three months after its June hike. It emphasized a shift in the phase of monetary policy and adopted a stance that prioritizes containing inflation.
At a press conference, Governor Ueda (植田) said he recognized that underlying inflation was moving closer to the 2% target and indicated that the BOJ intended to accelerate the pace of future rate hikes if there were risks of inflation overshooting.
External factors, including escalating tensions in the Middle East, higher oil prices and expanding demand for AI, are increasing global inflationary pressures. The US Federal Reserve and the ECB, as well as the BOJ, have opted for rate hikes.
Market attention is focused on the terminal rate, the eventual endpoint of the tightening cycle. The BOJ indicated that it would make flexible policy decisions going forward without being bound by specific intervals. The neutral interest rate estimated by the BOJ is in a range of 1.1%–2.5%, and the additional 0.25% hike pushed the policy rate above the lower bound.