The Bank of Japan raised its policy rate by 0.25 percentage points to 1.25%. With the risk of rising prices increasing against a backdrop of higher crude oil prices and yen depreciation, it indicated that it would determine the appropriate timing for additional rate hikes.
Since ending its large-scale monetary easing in 2024, the Bank of Japan has continued to raise rates at a pace of roughly once every six months. This time, however, marked a rate hike after an interval of three months, with the policy rate raised by 0.25 percentage points to 1.25%. This brought it to its highest level in approximately 31 years.
Surging crude oil prices and yen depreciation were cited as the main causes of rising prices. As the Corporate Goods Price Index continues to rise, it was pointed out that price pass-through to consumer goods could advance going forward. With the underlying inflation rate approaching 2%, it was said that attention must also be paid to the impact of rapid tightening on the economy.
At a press conference, Governor Ueda Kazuo (植田 和男) expressed concern about the risk of an upside overshoot beyond the price stability target and indicated that the rate-hike phase had changed. Views have also emerged that U.S. intentions and external factors influenced the Bank of Japan's decision-making.
The focus going forward is the terminal level of the current rate-hike cycle. In financial markets, expectations of a 1.5% terminal rate have spread alongside views that it could reach 1.75%. It was said that the Bank of Japan needs to carefully assess the impact on funding at small and medium-sized companies and on housing loans.