"BOJ Considering 0.25% Interest Rate Hike... Highest Since 2008"

Nihon Keizai Shimbun Report
Current 0~0.1% → Increase to 0.25%
Highest Level Since 2008 Financial Crisis

On the 31st, reports emerged that the Bank of Japan (BOJ) is considering raising the short-term policy interest rate from the current 0-0.1% to 0.25% at its monetary policy meeting.

The Nihon Keizai Shimbun (Nikkei) reported that "As the BOJ is reviewing an additional rate hike, raising the current policy rate of 0-0.1% to 0.25% is a likely option," adding, "The Ministry of Finance and the Ministry of Internal Affairs and Communications participating in the meeting also plan not to exercise their veto rights against the BOJ." If Japan’s benchmark interest rate rises to 0.25%, it would reach the highest level since December 2008 (around 0.3%) following the Lehman Brothers crisis.

[Image source=Reuters Yonhap News]

Previously, the BOJ ended the era of negative interest rates by raising rates for the first time in 17 years at the March meeting, but kept rates unchanged in the two subsequent meetings. According to Nikkei, the BOJ’s consideration of an additional rate hike reflects the judgment that inflation has entered an upward trend, exceeding the 2% target since the March rate increase. In June, Japan’s consumer price index (CPI, excluding fresh food) rose 2.6% year-on-year, surpassing 2% for 27 consecutive months.

Additionally, the BOJ is expected to announce plans to reduce the scale of long-term government bond purchases at this meeting. The likely plan is to halve the current monthly bond purchases of about 6 trillion yen to 3 trillion yen by the end of fiscal year 2025 (April 2025 to March 2026). Nikkei explained that "As of the end of March, the BOJ held 53% of the outstanding government bonds and has effectively controlled long-term interest rates," adding that the BOJ, which has maintained its bond purchase policy, is shifting to 'quantitative tightening' by reducing its bond holdings.

However, some analysts predict that the BOJ may keep rates unchanged due to concerns over consumption stagnation caused by the rate hike amid Japan’s declining real wages. The BOJ will announce the meeting results around noon. In the afternoon, BOJ Governor Kazuo Ueda will hold a press conference to explain the background of the policy decision and economic trends.

Naoya Hasegawa, chief bond strategist at Okasan Securities, said, "If the BOJ raises rates today, the rate is expected to increase to 1% by the end of fiscal year 2025," adding, "This will increase the likelihood that Japan will fully transition to a positive interest rate environment."

Meanwhile, in the foreign exchange market, the yen-dollar exchange rate briefly rose to the 155.1 yen level in the afternoon of the previous day but fell to around 152.2 yen in the morning. Nikkei analyzed, "Following reports that the BOJ is considering an additional rate hike, investors anticipating a narrowing interest rate gap between the U.S. and Japan are buying yen and selling dollars."