Japan raises interest rates to 31-year high to curb impact of rising prices — SkimNews
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- Bank of Japan raised its target interest rate from 1% to 1.25%, the highest level since 1995, joining the US Federal Reserve and European Central Bank in tightening monetary policy this month amid inflation linked to the Middle East conflict.
- Kazuo Ueda, the BoJ governor, declined to rule out back-to-back rate rises, saying the pace depends on inflation data and that officials would "take timely action as needed" rather than follow a pre-set schedule.
- Two of the BoJ's nine policy board members dissented against the increase, leaving analysts at HSBC and TD Securities to forecast the next 25-basis-point hike in December rather than at the BoJ's October meeting.
- The yen weakened more than 1% against the dollar on Friday after the decision, despite US Treasury Secretary Scott Bessent's earlier warning to currency traders not to bet against the Japanese currency.
- Japan's Nikkei stock index rose nearly 2% while European markets fell 0.5%; the Japanese two-year government bond yield dropped 4 basis points to 1.82%.
- Japan's August inflation rate stood at 1.9%, approaching the BoJ's 2% target and prompting Ueda to shift the bank's focus from pushing inflation up to preventing it from overshooting.
Why it matters: The BoJ's 1.25% rate — a level not seen in over three decades — marks Japan's definitive exit from its deflation-era stance, with Ueda explicitly pivoting from boosting inflation toward preventing overshoots. The split 7-2 vote gives analysts and borrowers cover to expect the next move in December, not October.
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