At the policy meeting ending on the 18th, the Bank of Japan raised its policy rate from around 1.0% to around 1.25%, marking the first rate hike in 3 months. As underlying inflation approaches 2%, the consistency between flexible monetary policy management and the level of the neutral interest rate is being put to the test.
Amid mounting global inflationary pressure caused by factors including turmoil in the Middle East, the Bank of Japan raised its policy rate from around 1.0% to around 1.25%. It stepped up its response as the underlying trend in price increases approached 2%, accelerating the pace of rate hikes to date.
Governor Kazuo Ueda (植田和男) emphasized the upside risks to prices and explained that the policy environment had changed, while also indicating that accommodative monetary policy should not be maintained for an extended period.
As inflationary pressure from supply constraints, including persistently high crude oil prices and rising prices for imported goods, continues, the view has also been raised that excessive government intervention could undermine the independence of monetary policy.
The rate hike was above the lower end of estimates for the neutral interest rate, while the view was expressed that the Bank should assess future economic conditions while maintaining a neutral stance.