The Bank of Japan (BoJ) raised interest rates to the highest level since the 2008 global financial crisis, Reuters reported.
The bank underscored its confidence that wage growth would keep inflation stable near its 2% target. The decision came days after the inauguration of US President Donald Trump who threatened to raise tariffs.
The BoJ lifted the short-term interest rate from 0.25% to 0.5% at its two-day meeting that ended on Friday. The decision was approved by a vote of 8 to 1. The bank made no changes to its future policy recommendations, saying it would continue to raise interest rates if its economic and price forecasts proved correct.
Underlying inflation is heightening towards the BoJ’s 2% target.
However, the future path of BoJ rate hikes is fraught with uncertainty. The course may be guided by trade sensitivity and Trump’s calls for further rate cuts by the US Federal Reserve, as well as similar actions by central banks around the world.
The board currently forecasts core consumer inflation to reach 2.4% in fiscal 2025. It will then slow to 2.0% in 2026.
After becoming governor of the BoJ in April 2023, Kazuo Ueda phased out his predecessor’s radical stimulus programme last March and raised short-term interest rates to 0.25% in July.
BoJ policymakers have repeatedly said the central bank will continue to raise rates if Japan makes progress on the cycle. Rising inflation is expected to boost wages and consumption, thereby allowing firms to continue to incur higher costs.
