The Bank of Japan raised its policy rate to 1.25% at its monetary policy meeting, reaching a new high for the first time in about 31 years. The additional rate hike, the first in 3 months, is intended to address the risk of rising prices.
At its monetary policy meeting on the 18th, the Bank of Japan decided to raise its policy rate from around 1.0% to around 1.25%. The hike brings the rate to its highest level in about 31 years and marks the shortest interval between rate hikes since the shift away from large-scale easing in 2024. The move is intended to address the risk that the inflation rate could exceed expectations as the Bank works to achieve its price stability target.
The decision was approved by a majority of 7 of the 9 Policy Board members, with Policy Board members Asada Toichiro (浅田統一郎) and Sato Ayano (佐藤綾野) opposing the rate hike. While the Bank assesses that underlying inflation is moving closer to 2%, it believes that maintaining an accommodative environment could raise concerns about prices exceeding 2%. It also pointed to factors such as higher crude oil prices and yen depreciation that could contribute to rising prices.
Since the June meeting, when the policy rate was set at around 1.0%, the Bank has sought to reduce the degree of monetary easing through this additional rate hike and reaffirmed its intention to ease upward pressure on prices. It maintained its view that private consumption remains firm, but the impact of higher policy rates on financial conditions will be a focus going forward.
Regarding developments in the Tokyo market and the pace of future rate hikes, as noted in the main article, the situation remains one of awaiting further updates.