At its monetary policy meeting on the 18th, the Bank of Japan raised its policy rate to around 1.25%, with the decision passing by a 7-2 vote and bringing the rate to its highest level in about 31 and a half years. Concerns over upside inflation risks have intensified against the backdrop of higher crude oil prices and a weaker yen.
At its monetary policy meeting on the 18th, the Bank of Japan decided to raise its policy rate to around 1.25%. The decision passed by 7 votes to 2, making this the first additional rate hike in three months since the June meeting.
The new rate is the highest since April 1995, or in about 31 and a half years. Since ending its negative interest rate policy, the Bank of Japan had been raising rates at a pace of roughly once every six months, but this tightening came after the shortest interval yet.
The decision was driven by concerns over upside inflation risks stemming from higher crude oil prices and a weaker yen. Rising corporate goods prices and increased pass-through of costs amid expanding demand for AI are also cited as pressures on the price stability target.
The FRB's continued rate hikes and the ECB's increase in interest rates also supported the Bank of Japan's decision as part of the external environment. Wider interest rate differentials between Japan, the United States and Europe are intensifying downward pressure on the yen, and markets are focused on the pace of future rate hikes.