The Bank of Japan raised its policy rate to 1.25%, marking a 31-year high. The market is increasingly focused on the timing of the next rate hike and the yen’s movements, with the direction of the Japan-US interest rate differential also drawing attention.
On the 18th, the Bank of Japan raised its policy rate to 1.25%, a level not seen since 1995 and a long-term high. As a result, financial conditions are expected to remain at elevated interest rate levels, and it was decided to maintain the current rate level.
Immediately after the announcement, the exchange rate briefly rose from the lower ¥156 range to the ¥157 range, while it also returned to the ¥156 range once the press conference began. The yen was subsequently observed to move weaker again at times.
The market is turning its attention to the pace and timing of future rate hikes. The BOJ had only just raised rates in June, and hikes at three-month intervals would represent a faster pace than seen previously. While the Federal Reserve has indicated the possibility of additional rate hikes this year, Japan is taking a cautious stance on whether to raise rates further and on the pace of any such hikes.
At the governor’s press conference, the BOJ indicated that it would consider the timing and pace of future adjustments to the degree of monetary easing, taking into account the economic and price outlook, exchange rate movements and AI demand. Market participants took the comments as containing no strong indication of an acceleration in rate hikes, while still pointing to the possibility that rate hikes will continue.