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The Bank of Japan has raised short-term interest rates to the highest level in 30 years, as rising prices transform an economy that spent decades mired in deflation.
In a statement on Friday, the BoJ said it was raising its policy rate by 0.25 percentage points to “around 0.75 per cent”.
The rate increase was the fourth since governor Kazuo Ueda took the helm of the central bank in 2023. It continues the monetary policy “normalisation” process he launched last year and followed weeks of heavy hints to markets that a rate rise was coming.
In a statement accompanying the decision, the BoJ justified the increase by saying that it was “highly likely that the mechanism in which both wages and prices rise moderately will be maintained”.
Anticipation of the BoJ’s move, combined with investor concerns that Japan’s fiscal position will be stretched by massive government spending plans, has driven yields on Japanese government bonds to multiyear highs.
Ahead of the BoJ’s announcement yields on the benchmark 10-year JGB rose to an 18-year high of 1.981 per cent. Yields move inversely to prices.
Traders in Tokyo said markets would focus on Ueda’s comments at a press conference due later on Friday. They are watching for signals that further interest rate increases are likely in 2026.
Headline consumer price inflation has been above the BoJ’s target level of 2 per cent for more than three years, driven by the yen’s relative weakness and Japan’s dependence on imports of food and energy.
Shortly before the BoJ’s decision was announced, official data showed consumer prices excluding fresh food rose 3 per cent in November from a year earlier.
Kei Fujimoto, senior economist at SuMi Trust, said: “The BoJ’s stance towards rate hikes reflects the fact that inflation is becoming entrenched. Factors such as the pass-through of import prices, raw material costs, and labour expenses are contributing to sustained inflation.”
Data visualisation by Haohsiang Ko in Hong Kong
