Bank of Japan Raises Rates In Surprise Move

The Bank of Japan has raised interest rates and introduced a plan to reduce its purchases of Japanese government bonds by half, in a move that surprised the markets, Kazuaki Nagata reported for Japan Times.

The BOJ voted to increase its short-term policy rate target to 0.25% from a range of 0% to 0.1%. I Photo: Bank of Japan Facebook

At its two-day policy meeting, the BOJ voted to increase its short-term policy rate target to 0.25% from a range of 0% to 0.1%. Most BOJ watchers had expected that the central bank would wait until September or October to tighten in order to gather more data.

The yen strengthened to the ¥152 level against the dollar ahead of the announcement, as local media reported the possibility of a rate increase.

The Japanese currency has staged a dramatic comeback from the nearly ¥162 level in early July.

Although consumption has remained sluggish, pay has been rising. A 5.1% rise in wages negotiated by large corporations was followed by a record ¥50 increase in the hourly minimum wage, which is also an increase of about 5%.

The BOJ has also faced political pressure to act, as some ruling party lawmakers urged it to take a more hawkish stance to mitigate inflation.

The bank also announced a plan to reduce the purchases of government bonds by ¥400 billion each quarter through March 2026. It has been buying about ¥6 trillion of bonds each month.