Bank Of Japan Hikes Key Rate To Highest Level Since 1995

(RTTNews) - The Bank of Japan decided to raise its benchmark interest rate by a quarter-point to its highest level in 31 years, and to halt government bond purchase reductions next year.

The policy board of BoJ voted 7-1 to raise the interest rate to 1.00 percent from 0.75 percent, as widely expected, on Tuesday.

The board signaled its commitment to further monetary policy tightening to support its price stability target.

With the latest hike, the interest rate reached its highest level since 1995. Previously, the BoJ had lifted the interest rate in December.

As Governor Kazuo Ueda was hospitalized last week, Deputy Governor Shinichi Uchida presided the meeting.

Board member Asada Toichiro cast the sole dissenting vote, arguing for maintaining the rate at 0.75 percent due to downside risks to production and employment amid Middle East developments. Only eight board members participated in the vote.

The board also decided to hold bond buying steady at around JPY 2 trillion per month from April 2027.

"…the Bank judged it appropriate to adjust the degree of monetary accommodation from the perspective of sustainable and stable achievement of the price stability target of 2 percent," the bank said in a statement.

The bank said it will continue to raise the policy interest rate and adjust the degree of monetary accommodation after considering developments in economic activity and prices as well as financial conditions. "In this regard, it will consider the timing and pace of adjustment, while closely monitoring the impact of the future course of the situation in the Middle East on Japan's economic activity and prices and examining the likelihood of realizing the baseline scenario of the outlook for economic activity and prices and the risks to the outlook," the bank said.

As governor Ueda was absent, Deputy Governor Uchida led the post-meeting press conference. Uchida said the bank will manage monetary policy to avoid falling behind the curve.

Economic growth is forecast to decelerate due to the impact of the Iran war. However, the economy is expected to continue growing moderately supported by government measures and accommodative financial conditions, the bank said.

Inflation is likely to rise clearly above the 2 percent target, as the rise in crude oil prices is expected to push up prices, with moves to pass on wage increases to selling prices continuing.

Thereafter, inflation is expected to decline towards 2 percent as high crude oil price effects diminish.