Bank of Japan Hikes Rate to 0.75%, First Move Since 1995

Japan's central bank, the Bank of Japan, raised its key short-term rate to around 0.75%, the highest level in about 30 years, signaling a shift after years of ultra-low policy. The decision was led by Governor Kazuo Ueda and comes as Prime Minister Sanae Takaichi pushes to curb inflation while preserving affordable government borrowing.

What changed

The Bank of Japan increased its policy rate by 0.25 percentage point, moving it to around 0.75% on Friday. This marks the BOJ's first rate hike since January and the first under the current leadership of Ueda and Takaichi.

Reasons and market context

Inflation in Japan remains above the target, with November's core inflation (excluding fresh food) rising about 3%. A weaker yen has lifted import costs and contributed to price pressures.

While a rate increase can help anchor inflation expectations, many economists say the impact may be limited if currency markets had already priced in the move and if the yen stays soft.

Implications for borrowing and the government

Higher rates raise borrowing costs for the government and for households and businesses seeking loans, which could affect fiscal plans and growth efforts.

Outlook and expert views

Analysts expect the BOJ to consider another hike next year, potentially bringing the policy rate toward 1%. Still, some observers warn the central bank will need time—likely several months—to assess the real-world effects before moving again.

Global context

Several major central banks are moving in the opposite direction, cutting rates or signaling easier money ahead. The Bank of England reduced its rate to 3.75%, while the U.S. Federal Reserve trimmed its target range to 3.50%–3.75%.

Expert comment

Expert comment: The Bank of Japan will likely need time to observe the impact of the tightening on the real economy, possibly around six months, before its next move, said Shigeto Nagai of Oxford Economics. Another analyst noted that the present environment—persistent inflation and currency weakness—limits immediate gains from further tightening, said Shoki Omori of Mizuho Bank.

Summary

Japan's central bank has begun to unwind decades of ultra‑low rates with a gradual tightening cycle aimed at taming inflation while protecting public finances. Markets will watch for how the economy reacts to higher borrowing costs and a firmer yen. The move sets the stage for a closely watched policy path next year as inflation remains stubbornly above target.

Key insight: After nearly three decades of easy money, Japan's central bank is entering a cautious tightening phase, balancing inflation risks with the need to manage government debt. Source: BBC

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