Bank of Japan hikes rates to 1%, highest since 1995, as yen and inflation worries take hold
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- Bank of Japan raised its policy rate to 1% — the highest level since 1995 — in line with economist expectations, accelerating the normalization cycle that began in 2024 with its first hike since December's move to 0.75%.
- The 25-basis-point increase passed 7-1, with board member Toichiro Asada dissenting in favor of holding rates steady.
- Japan's producer price index surged 6.3% in May — its fastest pace in over three years — driven by rising energy costs linked to the Iran war and elevated crude oil prices.
- Japan reportedly spent 11.7 trillion yen ($73.5 billion) on currency intervention operations in May, yet the yen continued weakening and touched 160 against the dollar, where it has lingered through June.
- BOJ will keep trimming government bond purchases by 200 billion yen per calendar quarter, then hold monthly JGB buying at 2 trillion yen from April 2027.
- Core inflation eased to 1.4% in April, its lowest since March 2022, but analysts told CNBC the softness reflects government suppression measures — including the gasoline tax removal and free high school — rather than genuine price stability.
- The Nikkei 225 rose 0.46% after the decision, the yen strengthened marginally to 160.22 against the dollar, and 10-year JGB yields climbed 3 basis points to 2.615%.
Why it matters: Japan burned through 11.7 trillion yen ($73.5 billion) on FX intervention in May and the yen still sat at 160 — so the BOJ is now joining the fight with actual rate hikes. The 7-1 split and Asada's dissent for a hold show the board isn't fully aligned, while PPI running at 6.3% signals consumer inflation pressure that the current 1.4% core CPI reading masks through government subsidies.
