Bank of Japan Hikes Rates to 1.25%, 31-Year High — SkimNews
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- Bank of Japan raised its target rate from 1% to 1.25%, the highest level since 1995, in a vote where two of nine board members dissented against the increase.
- Governor Kazuo Ueda declined to rule out back-to-back hikes, saying the BoJ has shifted its focus from pushing inflation up toward preventing it from overshooting 2%.
- Japan's August inflation ran at 1.9%, approaching the BoJ's 2% target, which Ueda cited as justification for the new policy stance.
- The yen weakened more than 1% against the dollar on Friday despite the hike, while the Nikkei rose nearly 2% and two-year Japanese government bond yields fell four basis points to 1.82%.
- US Treasury Secretary Scott Bessent had warned currency traders not to bet against the yen after a late-July US-Japan intervention moved at least $10bn in euros to buy yen.
- The Bank of England held UK rates at 3.75% on Thursday but warned they could rise, joining the Fed and ECB in tightening monetary policy this month as central banks respond to Middle East conflict-linked inflation.
- Analysts at HSBC and TD Securities expect the BoJ's next 25 basis point hike in December, not October, citing the two dissenters and cautious policy statement.
Why it matters: The hike to a 31-year high signals the BoJ now treats inflation as durably near its 2% target (August: 1.9%), but with two dissenters and Ueda refusing to commit to a pace, Japanese borrowers should expect measured, not aggressive, tightening. The yen's 1%+ drop against the dollar on hike day shows a single quarter-point move is no longer enough to reverse the currency's slide.
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