The Bank of Japan decided at its monetary policy meeting to raise the policy rate to 1.25%, its first rate hike in 3 months. Market participants are increasingly expecting the next rate hike to come this winter.
At its policy meeting on the 18th, the Bank of Japan decided by majority vote to raise the policy rate from 1.0% to 1.25%, marking its sixth rate hike. Seven members, including Governor Ueda Kazuo (植田和男), voted in favor, while the 2 dissenting members were Policy Board members Asada Toichiro (浅田統一郎) and Sato Ayano (佐藤綾野). The hike was the first in 3 months and brought rates to their highest level since April 1995.
The hike was seen as an acceleration in the pace of monetary normalization amid concerns about upside risks to prices, against a backdrop of turmoil in the Middle East, persistently high crude oil prices and upward pressure on import prices from the historically weak yen. Market participants have pointed to the possibility that price pass-through to areas closer to consumers will gather pace going forward.
Attention has now shifted to the timing of the next hike, with financial markets increasingly expecting another rate increase this winter. The BOJ had previously envisaged hikes at intervals of roughly 6 months, but the latest acceleration effectively represents an upward revision to the pace.
The BOJ's decision sets interest rates at levels not seen since April 1995, and market participants are closely watching developments in financial markets and prices going forward.