On Friday, January 24, the Bank of Japan decided to raise interest rates to the highest level since the global financial crisis of 2008.
At its two-day meeting, ending today, the Asian country’s financial regulator hiked its short-term policy rate from 0.25% to 0.5%. Japan has not seen such an indicator in almost 17 years. The relevant decision was made in an 8 to 1 vote with board member Toyoaki Nakamura dissenting.
The media reported that the mentioned action of the Bank of Japan is evidence of the intention of this financial regulator to raise the cost of borrowing to about 1%. Analysts are convinced that the specified indicator will not contribute to the cooling or overheating of the Asian country’s economy.
In an official statement from the Bank of Japan, it was noted that underlying inflation is approaching its target of 2%. Also in this context, it was separately highlighted that financial markets as a whole remain stable.
Currently, many companies in Japan continue to steadily increase wages.
The Bank of Japan has made no change to its guidance on future policy. The financial regulator intends to continue raising interest rates if its economic and price forecasts are realized. It is noteworthy that the Bank of Japan no longer makes statements about the need to scrutinize the risks associated with foreign markets and economies.
The financial regulator predicts that core consumer inflation will be 2.4% in fiscal 2025. In fiscal 2026, the corresponding figure is expected to be 2%.
Core consumer inflation accelerated to 3% in Japan in December. This pace of upward dynamic of the indicator is the fastest in 16 months. Rising fuel and food prices in the Asian country continue to increase the cost of living for households.
The Bank of Japan also predicts that the country’s economy will grow by 1.1% in fiscal 2025. The financial regulator expects that in fiscal 2026 the corresponding figure will be 1%.
Naka Matsuzawa, chief macro strategist at Nomura Securities in Tokyo, said that the logic of the Bank of Japan remains the same.
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