Bank of Japan Raises Interest Rate for Second Time in 17 Years

Bank of Japan Raises Interest Rate for Second Time in 17 Years

Sub: Eco

Sec: monetary policy

• Interest Rate Increase
  • Interest Rate: Raised to 0.25% from 0% to 0.1%.
  • This is the second rate hike in 17 years, following the first in March 2023.
• Monetary Policy Adjustment
  • The BoJ plans for further rate increases if the economy performs as expected.
  • Aims to adjust the degree of monetary accommodation based on economic conditions.
• Impact on Yen
  • The decision caused the yen to rise to 150.41 against the dollar.
  • Japan’s Ministry of Finance spent nearly $37 billion in the past month to support the yen.
• Economic Context
  • Wages are rising significantly, with unions achieving the largest increases in three decades.
  • Inflation has been above the BoJ’s 2% target since April 2022, moderating the impact of wage growth on consumption.
• BoJ Governor’s Remarks
  • Governor Kazuo Ueda noted the rate hike remains low in real terms.
  • He emphasized that the increase won’t significantly harm the economy and highlighted strong personal consumption.
• Reduction in Bond Purchases
  • The BoJ plans to halve monthly Japanese Government Bond purchases from six trillion yen ($40 billion) over the next two years.
• Market Reaction
  • The yen has shown volatility, especially strengthening recently due to expectations of a BoJ rate hike.
  • Earlier in July, the yen reached its weakest level against the dollar since 1986.
• Future Outlook
  • Attention shifts to the U.S. Federal Reserve for its upcoming rate decision.
  • Analysts expect a potential pause in rate hikes by the Fed, with speculation about a rate cut in September.