Bank of Japan raises interest rates to 31-year high … of 1%
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- Bank of Japan raised its short-term policy rate by 0.25 percentage points to 1% from 0.75%, pushing Japanese borrowing costs to their highest level since 1995
- Governor Shinichi Uchida called the US-Iran memorandum to end the Middle East conflict "a welcome move" but warned of uncertainty about how quickly oil supplies would recover
- The BoJ moved despite Japan's annual core inflation falling to a four-year low of 1.4% in April and despite oil prices easing on the US-Iran peace framework
- The BoJ cited the Japanese government's relief package for households facing high fuel costs as diminishing the risk of a sharp economic deterioration from the Middle East conflict
- Tokyo's Nikkei share index hit 70,000 points for the first time and closed at a new record high, having risen by a third so far this year
- The BoJ is the second G7 central bank to raise rates since the Iran war began, following the European Central Bank's rate hike last week, while the Fed and Bank of England are expected to hold
Why it matters: Japanese borrowers now face the highest borrowing costs in over three decades, a stark departure from the near-zero and even negative rates that defined the post-bubble era. The BoJ moved into an easing oil-price environment, signaling confidence that the US-Iran de-escalation will prevent inflation from re-accelerating. With the Fed and BoE expected to hold, Japan and the ECB are now tightening while their G7 peers stand pat.
