At its monetary policy meeting on the 18th, the Bank of Japan raised its policy rate from around 1.0% to around 1.25%, bringing it to its highest level in 31 years, since 1995.
The Bank of Japan held its monetary policy meeting that day and decided to raise its policy rate from its current level to around 1.25%. This advanced its exit from the long-term low-interest-rate environment, bringing the rate to its highest level in 31 years. The Bank of Japan has continued moving away from its long-term low-interest-rate policy, including through its previous rate hikes. The decision was within the range broadly anticipated by the market.
Central banks around the world have also been raising rates to curb inflation. The US Federal Reserve raised its policy rate for the first time in more than 3 years, while the European Central Bank has also recently raised rates. These moves are said to be driven by surging energy prices and rising inflationary pressures.
Japan’s economic conditions have been characterized by the continued depreciation of the yen, rising prices and a declining working-age population. Before the Bank of Japan’s announcement, the Ministry of Internal Affairs and Communications released the nationwide consumer price index for August. The inflation rate rose modestly by 1.7% year on year, but fell short of the Bank of Japan’s 2% target.
Risks to energy supplies arising from the situation in the Middle East and global price trends have been cited as factors behind Japan’s monetary policy. Amid continued downward pressure on the yen, the Bank of Japan is expected to maintain a cautious approach to curbing inflation.