The Bank of Japan hikes its key rate to 0.75% and signals more increases ahead as inflation remains above target and the economy recovers
TOKYO: The Bank of Japan raised interest rates to a 30-year high on Friday and signalled further tightening was likely.
Its policy board voted unanimously to lift the main borrowing rate to 0.75% from 0.5%.
The decision followed data showing Japan’s core inflation rate held steady at 3% in November, still well above the central bank’s 2% target.
Governor Kazuo Ueda said uncertainties over the US economy and its tariff policy were declining compared to the bank’s last meeting in October.
He stated the “possibility is high” that a cycle of rising wages and prices would continue.
In a report, bank officials said Japan’s economy had recovered moderately.
They added the BoJ would “continue to raise the policy interest rate” as long as economic activity and prices improved.
Analyst Abhijit Surya of Capital Economics said the “hawkish messaging suggests that the tightening cycle has further to run”.
He forecast rates could reach 1.75% by 2027.
Ueda told reporters the timing and pace of future hikes would depend on economic and price conditions.
The yen weakened against the dollar following the announcement, which puts rates at their highest since 1995.
Ueda noted several board members pointed out the cheaper yen was pushing up import and domestic prices.
Yields on Japanese government bonds have also spiked recently.
The yield on the benchmark 10-year bond rose to 2.01%, its highest since 1999.
Prime Minister Sanae Takaichi has made fighting inflation a major priority since taking office in October.
Her government this week secured parliamentary approval for an extra budget worth 18.3 trillion yen (RM 718 billion) to fund a stimulus package.
The November inflation data showed rice prices jumped 37% year-on-year due to supply issues and panic-buying.
Japan’s economy contracted 0.6% in the third quarter, but Ueda said last week the impact of US tariffs was less than feared.
He added the bank would monitor whether companies start passing tariff costs through to consumer prices. – AFP
