The Bank of Japan (Bank of Japan) raised interest rates on Friday from 0.25% to 0.5% – the highest level since the global financial crisis of 2008. This is the first increase in interest rates since July of last year, and there have been many indications over the past two weeks that tightening Japan’s monetary policy is inevitable, Bloomberg reveals, as the decision came just a few days after the inauguration of U.S. President Donald Trump.
In a statement explaining their decision, the Bank of Japan indicated that core inflation is moving towards the targeted 2%. However, if these forecasts do not materialize, especially since many Japanese companies have announced that they will continue to raise wages this year, the BoJ is expected to continue raising interest rates this year. The Bank of Japan is determined to raise interest rates to around 1%, Reuters reports, as this is a level that analysts do not see as either ‘cooling’ or ‘overheating’ the Japanese economy.
It is worth noting that in March 2024, the Bank of Japan ended its era of negative interest rates and raised borrowing costs for the first time since 2007, thus leaving behind decades of deflation. When the current governor Kazuo Ueda took over the leadership of the Bank two years ago, he immediately made it clear that his goal was to end the ‘easy’ monetary policy that characterized the entire previous decade, but without major restrictions.
