The Bank of Japan raised its policy interest rate by 25 basis points to 1.25 percent on Friday, the highest level in more than 30 years, and said it would continue raising rates to counter inflation fuelled by surging energy prices and a weak yen. The decision was carried by a 7-2 majority vote, and the two dissents drew attention from traders hoping the bank could move faster. Despite the hike, which had been telegraphed for weeks, the yen weakened to more than 157 per dollar from around 156.30 before the announcement, after touching a 40-year low against the dollar in July that prompted a historic joint US-Japanese intervention in foreign exchange markets. Figures on Friday showed core inflation, which excludes volatile fresh food prices, fell to 1.7 percent in August from 1.8 percent, below forecasts for it to remain unchanged, helped by government support for gasoline and electricity fees. Economists warned the reprieve could be short-lived, with Marcel Thieliant of Capital Economics saying higher energy costs are feeding through and inflation is expected to rise above the BoJ's two percent target before long. Tokyo also decided this week on a two-year reduction in the consumption tax on food products, from eight percent to one percent starting in April 2027.
Bank of JapanThe Bank of Japan itself raised its policy rate by 25bp to 1.25% and signaled further hikes.
BoJ raised its policy rate to 1.25%, the highest since 1995, pushing JGB yields up.
