Bank of Japan raises rates to 30-year highs
As expected, rising wages and inflation at 3 per cent prompted the Japanese central bank to raise the cost of money to 0.75 per cent
From our correspondent
NEW DELHI - Buoyed by the fact that 2026 will also be marked by robust wage increases that should keep inflation close to or above the 2 per cent target, the Bank of Japan (BoJ) on Friday raised interest rates by 25 basis points to 0.75 per cent, the highest level in more than 30 years. "Judging from the latest data and surveys, there is a high probability that the mechanism in which wages and inflation rise moderately in tandem will be maintained," reads the note that accompanied the announcement. The decision, for the first time since Kazuo Ueda has been at the helm of the BoJ, was taken unanimously.
Although the cost of money remains decidedly low compared to other major central banks, the governor's move represents an important new step towards normalising monetary policy in a country that has long grappled with deflation and negative rates. It is no coincidence that the Bank of Japan is currently the only major central bank to have embarked on a path of raising, rather than lowering, rates. In recent days, 90% of the economists polled by the Reuters agency had correctly predicted a 25 basis point adjustment. According to more than two-thirds of the sample, rates will rise to 1 per cent by September. many observers expect hikes at the rate of about one every six months.
Ueda will hold the traditional post-announcement press conference later today. An appointment that will, as always, be closely watched to try to gather elements on the central bank's next moves. According to analysts, it is unlikely that Ueda will commit to further hikes, but at the same time he may decide to launch signals to this effect in order to support the yen in a phase of very strong weakness and thus avoid a further increase in 'bad' inflation, linked to the huge costs for importing energy and foodstuffs, rather than to wage trends. Over the past year, the spread between US and Japanese interest rates has narrowed by 125 basis points without curbing the yen's fall against the dollar.
"Real interest rates are expected to remain significantly negative" even after the hike "and accommodative financial conditions will continue to strongly support economic activity," the BoJ's note reads. "Given that real interest rates are at significantly low levels, the BoJ will continue to raise interest rates and adjust the degree of monetary accommodation," if its economic and price forecasts materialise, the central bank said. the rate hike helped push ten-year government bond yields above the psychological threshold of 2 per cent. This has not happened since 1999.
