BOJ Decides to Raise Policy Rate to 31-Year High of 1 Pct

Tokyo, June 16 (Jiji Press)–The Bank of Japan decided Tuesday to raise its policy interest rate from around 0.75 pct to around 1 pct, a level unseen in about 31 years, amid concerns over inflation driven by high oil prices linked to the situation in the Middle East. At a two-day meeting that ended on the day, the BOJ’s Policy Board voted seven to one to raise its policy interest rate to the highest level since September 1995. The new rate will take effect on Wednesday. This marks the Japanese central bank’s first policy rate hike since December last year, following three consecutive policy-setting meetings at which the rate was left unchanged. BOJ Governor Kazuo Ueda, currently hospitalized for treatment of a liver cyst infection, was absent from the latest meeting and did not participate in the vote. Of the eight BOJ policymakers who attended the meeting, only Toichiro Asada opposed the rate hike, saying that the downside risk to production and employment is greater than the upside risk to prices. Later on Tuesday, BOJ Deputy Governor Shinichi Uchida will hold a press conference on behalf of Ueda. The BOJ has been gradually raising interest rates to normalize its monetary policy, and this is the fifth time it has raised rates since it lifted its negative interest rate policy in March 2024. The latest decision is expected to broadly impact companies and households through rises in deposit and mortgage rates. At the latest meeting, the BOJ also decided to stop reducing its Japanese government bond purchases next April and set the monthly purchase amount at around 2 trillion yen to avoid destabilizing the JGB market. “Japan’s economy has recovered moderately, although some weakness has been seen in part,” the BOJ said in a statement released after the meeting. The BOJ had been concerned that the worsening situation in the Middle East would disrupt supply chains and stagnate production activities, but said in the statement that “the risk of a significant slowdown in the economy appears to have decreased compared with a while ago” thanks to progress in procuring raw materials, which Japan relies heavily on the Middle East, from alternative sources. Meanwhile, the BOJ said that moves to reflect higher crude oil prices in domestic prices have been “progressing at a relatively fast pace in business-to-business transactions, which could spread to an increase in consumer prices across a wide range of items.” The bank acknowledged the risk of underlying inflation exceeding its target of 2 pct. The BOJ noted that it “will continue to raise the policy interest rate and adjust the degree of monetary accommodation.” END [Copyright The Jiji Press, Ltd.]