The Bank of Japan is reportedly set to raise its policy rate by 0.25 percentage points to 1.25% at its policy meeting on the 17th and 18th of this month. The rate is expected to reach its highest level in approximately 31 years, since April 1995.
The Bank of Japan is reportedly set to raise its policy rate by 0.25 percentage points to 1.25% at its Monetary Policy Meeting on the 17th and 18th of this month. With inflation approaching the 2% target, the move is intended to address the risk of an upside surprise in prices. The decision is expected to bring the rate to its highest level in more than 3 years, while the increase could take it to its highest level in approximately 31 years. The Bank of Japan believes that, although the domestic economy remains resilient, risks of an upside surprise in prices are increasing amid higher crude oil prices, yen depreciation and expanding AI-related demand.
In this case, lending has continued to increase even after the policy rate was raised to 1.0% in June, and financial conditions are still considered accommodative. Some have also suggested that if the current level is maintained, prices could rise above the 2% target. The Bank of Japan has traditionally raised rates at six-month intervals, but some observers believe it could take additional action just 3 months after the June increase.
The move suggests a shift in monetary policy in response to the resilience of the domestic economy and price trends, and markets are expected to focus on the announcements from upcoming meetings.