Third Rate Hike Since Ending Negative Interest Rates Last March
Japan's central bank, the Bank of Japan (BOJ), decided to raise interest rates at its Monetary Policy Meeting on the 24th. With this rate hike, Japanese interest rates have reached their highest level in 17 years.
At the two-day Monetary Policy Meeting held until that day, the BOJ decided to raise the short-term policy interest rate, the benchmark rate, from the current 0.25% to 0.5%.
According to Nihon Keizai Shimbun (Nikkei), the policy rate reaching 0.5% is the first time in 17 years since October 2008. Japan had never seen its policy rate exceed 0.5% since September 1995.
Last March, the BOJ ended its negative interest rate policy by raising the short-term policy rate for the first time in 17 years. Then, in July last year, it raised the rate from 0~0.1% to about 0.25%. This time, it raised the rate again after six months.
Until now, the BOJ had maintained the stance that it could further raise interest rates if inflation stabilized above 2% and wages increased. On the 16th, BOJ Governor Kazuo Ueda hinted at the possibility of a rate hike, saying regarding wage increases, "There were generally many positive remarks from corporate executives at the beginning of the year and from reports at last week's BOJ branch managers' meeting."
Nikkei explained that given the outlook for significant wage increases and limited market volatility following the inauguration of U.S. President Donald Trump, a rate hike was deemed possible.
Also, the Japanese Ministry of Internal Affairs and Communications announced that last year's consumer price index (excluding fresh food) rose 2.5% compared to the previous year.
On the same day, the BOJ also released its quarterly "Outlook for Economic Activity and Prices" report. The forecast for the consumer price inflation rate (excluding fresh food) for fiscal 2024 (April 2024 to March 2025) was raised to 2.7%, up 0.2 percentage points from the previous forecast of 2.5% announced in October last year.
The consumer price inflation forecasts for fiscal 2025 (April 2025 to March 2026) and fiscal 2026 (April 2026 to March 2027) were 2.4% and 2.0%, respectively, each raised by 0.5 percentage points and 0.1 percentage points from previous forecasts.
The real gross domestic product (GDP) growth rate forecast for fiscal 2024 was lowered by 0.1 percentage points to 0.5% from the previous forecast of 0.6%, while the forecasts for fiscal 2025 (1.1%) and fiscal 2026 (1.0%) remained unchanged.
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