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The Bank of Japan (BOJ) raised its short-term policy rate by 25 basis points to 0.5%, marking a significant increase since its 2008 financial crisis. This move underscores the BOJ’s confidence that rising wages will sustain inflation around its 2% target.
The decision follows days after U.S. President Donald Trump’s inauguration, with markets remaining stable despite potential global repercussions from tariffs and trade tensions. BOJ Governor Kazuo Ueda emphasized that wage and price increases are broadening, signaling steady progress in labor markets.
Ueda hinted at gradual rate hikes ahead, noting the challenge of measuring Japan’s neutral rate in real-time. Experts predict one hike every six months, with a possible July-September or early next year timeline.
The BOJ aims to support businesses by passing on higher costs, but inflation has accelerated to 3.0% in December, driven by fuel and food prices. Meanwhile, the yen’s weakness is boosting import costs, adding to economic pressures.
The yen rose against the U.S. dollar following the rate hike, with one basis point appreciation expected by Friday. BOJ policymakers remain committed to maintaining equilibrium while navigating global trade dynamics and U.S. Fed actions.
Source: https://www.reuters.com/markets/asia/boj-likely-raise-rates-highest-17-years-signal-more-hikes-2025-01-23