Bank of Japan raises interest rates to 31-year high, flags concerns over inflation — SkimNews
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- Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest level since 1995, accelerating its tightening cycle to a 3-month gap versus the previous 6-month interval.
- The rate decision was split 7-2, with board members Toichiro Asada and Ayano Sato — both appointees of Prime Minister Sanae Takaichi — dissenting because core inflation sat below the 2% target at 1.7% in August.
- The BOJ said the hike was needed to address the risk that inflation deviates upward beyond its 2% target, aiming to stabilize underlying inflation at "around 2%."
- The yen weakened 0.45% to 156.64 against the dollar after the decision, while the benchmark 10-year Japanese government bond yield fell 4.9 basis points to 2.947%.
- August headline inflation stood at 1.9%, and Tokyo and Washington recently conducted a coordinated intervention to prop up the weakening yen.
- U.S. Treasury Secretary Scott Bessent told BOJ Governor Kazuo Ueda to take "decisive market and monetary steps" at this month's G20 meeting, clashing with her tilt toward easy monetary and expansionary fiscal policy.
- Nearly 90% of economists surveyed by CNBC had expected the 25-basis-point hike and correctly predicted the identity of the dissenters.
Why it matters: The 25-basis-point hike to 1.25% pushes Japanese borrowing costs to a three-decade high and tightens the policy gap with the U.S., yet the yen still weakened 0.45% to 156.64 — suggesting markets see the move as insufficient to close the rate differential driving yen depreciation. The 7-2 split, with dissenters tied to Prime Minister Takaichi, signals internal BOJ friction with the government's easy-money stance just as Treasury Secretary Bessent publicly pressured Governor Ueda to act more decisively.
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