The Bank of Japan (BoJ) has raised its key interest rate from 1% to 1.25%. The move takes Japan’s rate to its highest level since 1995. The central bank wants to control rising prices linked to global tensions and the Iran war. Japan now joins the US Federal Reserve and European Central Bank in tightening monetary policy.
Meanwhile, the Bank of England kept its rate at 3.75% on Thursday. However, it warned that higher rates could follow if inflation pressures grow.The BoJ’s nine-member policy committee approved the increase with two members voting against it. Governor Kazuo Ueda also left the door open for another hike soon.
“There could be various possibilities. We shouldn’t rule anything out,” Ueda said.
He added that the bank would study economic data carefully and act when necessary. The BoJ meets eight times yearly, but Ueda said officials have no fixed schedule for future rate hikes. Instead, each meeting will focus on keeping inflation around its 2% target.
Importantly, Japan’s inflation strategy has also changed. Ueda said the bank previously wanted to push inflation towards 2%. Now, officials want to prevent inflation from moving above that level. Japan’s inflation rate stood at 1.9% in August.
Bank of Japan began raising rates in 2024
The BoJ began raising rates in 2024 after ending its negative-rate policy. Since then, the weak yen has increased pressure on policymakers. The currency fell more than 1% against the dollar on Friday. Earlier, US Treasury Secretary Scott Bessent warned traders against betting against the yen.
For investors, the next BoJ meeting could bring fresh market movements. HSBC economist Fred Neumann said investors would watch for signals about another hike in December. TD Securities strategist Prashant Newnaha also expects the next increase in December.
However, he said there is no clear evidence for another hike in October. Following Friday’s decision, Japan’s Nikkei index climbed almost 2%. Meanwhile, two-year government bond yields fell four basis points to 1.82%. European stocks dropped 0.5%. Brent crude also fell as hopes grew for alternative oil supply routes from the Middle East.
