BOJ raises policy rate to 1.25%; yen briefly strengthens after Governor says “the policy phase has changed”

The Bank of Japan decided on the 18th at its monetary policy meeting to raise the policy rate from around 1.0% to around 1.25%. This was the first rate hike in three months, since the June meeting, making it the shortest interval between rate hikes since the end of negative interest rates. To address upside risks to prices, the BOJ said it expects wage increases to continue against a backdrop of factors including higher crude oil prices and yen depreciation.

The decision was approved by a majority vote, while Committee Members Asada (浅田) and Sato (佐藤) dissented. With the underlying inflation rate approaching 2%, the decision is viewed as having been based on an assessment of rising upside risks to prices. Governor Ueda (植田), who led the overall review, said that “the policy phase has changed.”

Following Governor Ueda’s (植田) remarks, USD/JPY briefly moved toward yen appreciation, reaching around ¥156.60 per dollar. The market reaction was interpreted as suggesting that the remarks indicated the pace of future rate hikes would not be fixed over any particular period.

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