The Bank of Japan (BOJ) has increased its policy rate by 25 basis points to 1.25%, the highest since 1995, reflecting a faster pace in its rate hike cycle initiated in March 2024. This decision, which was not unanimous with a 7-2 vote, indicates the BOJ's response to inflation risks that could exceed its 2% target.
The dissenting members, Toichiro Asada and Ayano Sato, argued against the hike, citing core inflation at 1.7% for August, which is below the target. The hike comes as Japan faces rising inflation, with the latest headline rate at 1.9%, and a weak yen, which traded at 156.64 after the announcement.
The U.S. has been urging Japan to continue its rate hikes, putting pressure on Prime Minister Sanae Takaichi's preference for a more accommodative monetary policy. The market is reacting to these developments, with the benchmark 10-year Japanese government bond yield falling to 2.947% following the rate increase