Bank of Japan Hikes Interest Rates to 17-Year High

The Bank of Japan expressed confidence that rising wages will keep inflation within its 2% target by raising interest rates to their highest level since the global financial crisis of 2008 and updating its inflation forecasts. 

The BOJ’s decision, which is the first rate hike since July of last year, was made just days after US President Donald Trump took office. Trump is expected to keep international policymakers on guard against the possible fallout from threatened higher tariffs.

In addition to stating that there is room to raise borrowing costs even more before they reach levels considered neutral to the economy, BOJ Governor Kazuo Ueda stated that the central bank will continue to raise interest rates as wage and price increases spread.

However, he gave few hints about when and how quickly rates would rise in the future, stating that the decision would depend on how quickly trend inflation in Japan reaches the BOJ’s target in a sustainable manner.

“We don’t have a predetermined concept. At every policy meeting, we’ll look at price and economic developments, as well as risks,” he said at a press conference following the policy decision.

During its two-day meeting, the BOJ increased its short-term policy rate from 0 percent to 0 percent, which is the highest level Japan has seen in 17 years. With board member Toyoaki Nakamura voting against it, the decision was made by an 8-1 vote.

The BOJ stated that it will keep raising interest rates if its price and economic projections come to pass, but it made no changes to its guidance on future policy.