The Bank of Japan (BoJ) raised interest rates to around 0.5% on Friday, the highest level since the 2008 global financial crisis. The widely anticipated move comes as policymakers observed that economic activity and price developments align with the Bank's projections.
In an 8-1 vote, the BoJ board increased its short-term policy rate from 0.25% to 0.5%. Board member Toyoaki Nakamura dissented against the decision.
The BoJ's Outlook for Economic Activity and Prices report indicates that Japan's economy is poised to grow above its potential growth rate, supported by a "virtuous cycle" of income and spending amid accommodative financial conditions.
The report also revealed revised inflation forecasts, with the Consumer Price Index (CPI), excluding fresh food, expected to reach 2.7% for fiscal 2024 and 2.5% for fiscal 2025. Higher import prices, partly due to the yen's depreciation, are contributing to these increases.
Firms expressed confidence in continuing wage hikes, building on last year’s solid wage growth. Despite the rate hike, real interest rates are projected to remain significantly negative, with accommodative financial conditions sustaining economic activity.
The BoJ affirmed its commitment to further rate increases and adjustments to monetary policy if the January outlook materialises.
BoJ Governor Kazuo Ueda is scheduled to hold a press conference at 5:30 pm AEDT (6:30 am GMT) to provide further insights into the policy decision.
