The Bank of Japan decided at its meeting on the 18th to raise the policy rate to around 1.25%. The additional rate hike came after 3 months, the shortest interval to date, and Governor Ueda emphasized the change in the policy phase at a press conference.
The Bank of Japan decided at its monetary policy meeting on the 18th to raise the policy rate to around 1.25%. The additional rate hike came 3 months after the June meeting, marking the shortest interval to date. The move is reportedly aimed at revisiting the pace of gradual rate hikes seen in recent years and preparing for upside risks to prices.
Governor Ueda Kazuo (植田 和男) emphasized at a press conference that “the policy phase has changed” and explained the policy decision as inflation moves closer to the 2% target. Although some reflationists voiced opposition, the governor was reported to have presented grounds justifying the measure.
The 1.25% rate adopted this time is above the lower bound of the neutral rate estimated by the Bank of Japan. The governor indicated that the Bank would continue raising rates toward the neutral rate, while repeatedly acknowledging that it is difficult to identify the neutral rate itself.
Since Japan emerged from deflation, underlying inflation has often remained below the 2% target, but the Bank is reportedly strengthening its stance of preparing for upside risks to prices in light of this decision. The Bank of Japan has not changed its policy direction of maintaining accommodative financial conditions without excessively cooling the economy.