BOJ Hikes Rates to 0.75% as Inflation Mounts in Japan

Japan's central bank raised its key policy rate to 0.75 percent, the highest level in 30 years, signaling a new phase for the country's monetary policy amid stubborn inflation and higher living costs. The decision comes as Prime Minister Sanae Takaichi aims to cool price growth without pushing up government borrowing costs.

What happened

The Bank of Japan's policy board, led by Governor Kazuo Ueda, increased the target rate by 0.25 percentage point to around 0.75 percent. It marks the first hike since January and the first under both Ueda and the newly appointed prime minister.

Why this happened

Raising rates can help slow inflation and support the yen. A weaker currency makes imports more expensive, contributing to higher living costs, while higher rates raise the expense of government borrowing in a country with a large public debt.

Market and policy implications

The move signals a shift away from decades of ultra-low rates. Economists say further tightening could come, but the pace will depend on how inflation evolves and how the economy responds to tighter financial conditions.

Core inflation—which excludes volatile food and energy prices—remains above the 2 percent target, highlighting the ongoing challenge for policymakers.

Expert opinions

Shoki Omori, chief strategist at Mizuho Bank, notes the rate increase is unlikely to immediately curb inflation since markets had already priced in higher rates and the yen remains weak.

Julia Lee of Pacific FTSE Russell describes the move as a historic shift, signaling potential further tightening in the months ahead.

The outlook

Most economists expect at least one more rate rise next year, possibly bringing the policy rate toward 1 percent, before policymakers take time to assess the economy's response.

Conclusion

Japan's central bank has entered a new era of policy, balancing inflation control with the need to keep borrowing costs manageable for the government and households.

Expert comment: The shift marks a major policy transition, though the timing of additional moves will rely on ongoing inflation data and economic activity.

Short summary: The Bank of Japan raised its main rate to 0.75%, the highest in decades, signaling a new phase in monetary policy. Further hikes are anticipated, but the pace will depend on data. The yen's trajectory and import costs will influence outcomes for consumers and businesses.

Key insight: The BoJ's decision marks the start of a new policy era in Japan, balancing inflation control with affordable borrowing. BBC News

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