Bank of Japan Elevates Interest Rates to a Record High in 30 Years
The Bank of Japan has unanimously decided to increase its key short-term interest rate by 25 basis points to 0.75% on December 20. This is a significant move as it marks the highest level since September 1995. It also represents the central bank’s second rate hike in 2024, highlighting a gradual shift away from its ultra-loose monetary policy.
BOJ Governor Kazuo Ueda expressed that “it is highly likely that wages and prices will continue to rise moderately,” while also noting that risks to the economy have diminished. Inflation in Japan has consistently remained above the BOJ’s 2% target for over two years, reaching a peak of 3% in November when excluding volatile fresh food costs.
The purpose of the rate increase is to combat the persistent inflation driven by a weakened yen, which has resulted in more expensive imports for Japanese consumers. This decision comes at a time when Japanese companies are preparing for another round of substantial wage increases in 2026, building on the largest wage gains in 33 years achieved in 2024.
Financial markets had anticipated this move, though analysts caution that it could have an impact on global investment strategies. This is particularly relevant to the “carry trade” where investors borrow cheaply in yen to invest elsewhere. However, the BOJ has signaled that it will continue to gradually raise rates if economic conditions remain on track.
Source: https://finance.yahoo.com/news/know-possible-impact-japans-rate-030901205.html