Bank of Japan raises rate to 1.25% — CNBC
In Japan, the Bank of Japan raised its key interest rate by 25 basis points to 1.25%. This is the highest rate level since 1995, CNBC Top News reports.
Central bank vote
Seven of the nine members of the Japanese central bank’s board voted in favor of raising the rate. Toichiro Asada and Ayano Sato voted against it. Both board members were appointed at the beginning of the year by Japanese Prime Minister Sanae Takaichi.
This decision means an acceleration of the monetary tightening cycle that the Bank of Japan began in March 2024. The previous rate increase took place three months earlier, while before that six months had passed between decisions to raise rates.
Inflation and markets
In its statement, the Bank of Japan explained the decision by the risk that inflation could exceed the 2% target. The country’s headline inflation rate stood at 1.9% in August. The rate increase was expected: nearly 90% of economists surveyed by CNBC forecast a 25-basis-point tightening.
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After the decision was announced, the yen traded at 156.64, weakening by 0.45%. The yield on 10-year Japanese government bonds fell by 4.9 basis points to 2.947%.
According to CNBC, Tokyo and Washington carried out a coordinated intervention to support the yen. The strengthening of the Japanese currency could likely reduce the country’s costs of importing energy resources. In August, Japan’s foreign trade deficit exceeded 1 trillion yen amid rising energy import costs. Analysts surveyed by CNBC link this to the replacement of some Middle Eastern oil supplies with more expensive oil from the United States.
The United States also urged Japan to continue its rate-hiking cycle. Earlier this month, US Treasury Secretary Scott Bessent, at a G20 meeting, urged Bank of Japan Governor Kazuo Ueda to take decisive market and monetary steps.
