Tokyo, Sept. 18 (Jiji Press)–The Bank of Japan decided to raise its policy interest rate by 0.25 percentage point to around 1.25 pct, the highest level in about 31 years, at a two-day meeting of its Policy Board that ended Friday. The last time the policy rate stood at 1.25 pct was back in April 1995. The board voted seven to two to implement its first interest rate hike in three months, the shortest interval between rate increases under BOJ Governor Kazuo Ueda, who assumed the post in 2023. An interval of about three months was last seen during the bubble economy era. The two board members who voted against the additional rate hike were Toichiro Asada and Ayano Sato. Asada called for keeping the policy rate unchanged at around 1 pct. Sato argued that now is not the appropriate time to raise the rate. The new policy rate target will take effect on Thursday next week. Monday through Wednesday will be national holidays in Japan. The latest BOJ rate hike decision came as the Japanese central bank recognized growing upside risks to prices amid soaring crude oil prices reflecting Middle East tensions. While financial market players had expected that the BOJ would implement an interest rate hike once every six months or so, the central bank opted to raise the rate at a faster pace in the process of monetary policy normalization following the end of its massive easing in March 2024. Looking ahead, companies in the downstream industries, which directly impact consumers, are expected to start covering higher costs with price hikes in earnest. This has ignited concerns that inflation in Japan may climb above the BOJ’s target of 2 pct. The BOJ’s latest move came after the European Central Bank and the U.S. Federal Reserve decided earlier this month to raise interest rates. It was the sixth rate hike by the BOJ since the end of its ultraeasy policy. Financial market players’ attention is shifting to when the BOJ’s next interest rate hike will come. Some expect the central bank to carry out the next hike this winter. In a statement to announce the latest policy decision, the BOJ said that the bank will “continue to raise the policy interest rate and adjust the degree of monetary accommodation” in response to developments in economic activity and prices, as underlying inflation has been approaching the bank’s target of 2 pct and financial conditions are expected to remain accommodative. There is a risk of inflation topping 2 pct partly because companies’ behavior is “shifting more toward” raising wages and prices, the BOJ said. The central bank said it will consider “the timing and pace” of future rate hikes while examining the likelihood of its baseline scenario on economic activity and prices coming true. Japan’s economy is recovering moderately although some weakness has been seen due to the impact of Middle East tensions, it said, adding that “particular attention” is required for the effect of the Middle East situation on the financial and foreign exchange markets as well as economic activity and prices in Japan. The economy is expected to continue growing moderately, underpinned by factors such as various measures taken by the government and robust artificial intelligence-related demand worldwide. END [Copyright The Jiji Press, Ltd.]
