Global Economy
Bank of Japan hikes policy rate to 1% – Highest level in over three decades
The Bank of Japan (BoJ) raised its short‑term policy rate to 1% on Tuesday, the highest level since 1995, in a move aimed at containing inflation pressures stemming from the Middle‑East conflict. The decision, passed 7‑to‑1, also includes a pause on the gradual taper of government‑bond purchases, while Governor Kazuo Ueda remains absent due to health reasons.
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Bank of Japan raises policy rate to 1% – Highest since 1995
The Bank of Japan (BoJ) announced on Tuesday that it has lifted its short‑term policy rate to 1%, marking the first time the rate has been this high since 1995. The decision, approved by a 7‑to‑1 vote, reflects growing concerns that the war in the Middle East could stoke inflation in Japan.
Rising oil prices, driven by the conflict in Iran, have put upward pressure on import‑dependent Japan’s consumer prices. The BoJ’s statement noted that government measures to ease fuel‑cost burdens on households and progress toward alternative energy sources have reduced the risk of a severe economic downturn.
However, the central bank warned that price outlooks remain fragile. Companies appear to be passing higher oil costs onto customers at a “relatively fast pace,” which could lift consumer‑price inflation across a broad range of goods.
Key quotation:“Given that medium‑ and long‑term inflation expectations are also rising, there is a risk that underlying inflation could drift beyond our price target,” the BoJ said.
In addition to the rate hike, the BoJ decided to suspend its gradual bond‑buying taper starting in April and will continue purchasing roughly ¥2 trillion (≈ €10.8 billion) of Japanese Government Bonds each month.
Governor Kazuo Ueda, who has been in hospital for medical treatment, did not attend the meeting or vote – a first since at least 1998. Deputy Governor Shinichi Uchida will address the press to explain the policy shift.
Related topics: Monetary policy, policy rate, BoJ, inflation risks, Middle‑East conflict.