The Bank of Japan raised its policy rate to 1.25%, a level not seen in 31 years. The market is focused on the timing of the next rate hike, while attention is also on future movements in the yen and interest rates.
Around noon, the Bank of Japan raised its policy rate to approximately 1.25%, a level not seen since 1995. Immediately after the announcement, the exchange rate moved from around ¥156 per US dollar into the ¥157 range. The yen briefly returned to the ¥156 range when the press conference began, but has since moved toward yen depreciation.
At the press conference, Bank of Japan Governor Ueda Kazuo (植田和男) explained that financial conditions remain accommodative and that it is necessary to remain alert to upside risks to prices. Market participants generally understood that the pace of future rate hikes would continue to be assessed cautiously, as before. The view was expressed that decisions would take into account the Federal Reserve’s earlier rate-hike trajectory, as well as developments in the Middle East, expanding AI-related demand and the impact of exchange-rate movements.
Market focus has shifted to the timing and size of the next rate hike. Several market participants said, “There were no remarks supporting an acceleration in rate hikes, but further hikes remain possible.” Some also expect 1 more rate hike later this year or early next year, as well as a larger increase, while others have pointed out that hikes could be put on hold depending on economic conditions and price trends.