Bank of Japan Raises Rates to Highest Level in 17 Years

JAN 24 2025·Updated JAN 26 2025

Story

Above: Bank of Japan Gov. Kazuo Ueda speaks during a news conference at the central bank's headquarters in Tokyo, Japan, on Friday, Jan. 24, 2025. Image credit: Akio Kon/Bloomberg/Contributor via Getty Images

The Facts

The Bank of Japan (BOJ) raised on Friday the country's benchmark interest rate by a quarter-point to 0.5% — a level last seen in place in 2008 — in the first such increase since last July.
Bank of Japan
The Asahi Shimbun
The decision to tighten monetary policy was decided in an eight-to-one vote, with Toyoaki Nakamura dissenting on the grounds that a rise in corporate earning power should be confirmed before any change in interest rates.
Bank of Japan
Kyodo News+
Further hikes are to follow "if the outlook for economic activity and prices presented in [its] January Outlook Report [is] realized," the Japanese central bank said in its release, as the neutral interest rate is estimated to be somewhere from 1.0% to 2.5%.
Bank of Japan
www.ft.com
Nikkei Asia
This comes as headline inflation and core inflation rose to 3.6% and 3% last month — the highest since January 2023 and August 2023, respectively — with core inflation at or above the 2% target for 33 straight months now.
ap
CNBC
NBC10 Philadelphia
The BOJ expects annual core inflation to hit 2.7% in March, compared with a projected 2.5% increase, and to rise 2.4% in March 2026 and 2% in March 2027, up from 1.9% previously estimated for both fiscal years.
The Japan Times
The Wall Street Journal
This was the third rate hike in Japan since 2007 as the country kept them negative for years to encourage people to spend their money instead of saving it in a bank. Borrowing costs were raised to 0.1% in March and to 0.25% in July.
Kyodo News+
ap
BBC News

Sources Split

LEFT

CENTER

RIGHT

ESTAB
CRIT

CENTER

PRO
ESTAB

The Spin

Narrative A

The Bank of Japan has made good on its hawkish pledge, heading closer to the interest rates of other countries and creating room for conventional monetary policies in case of future economic events, as wage pressure has been confirmed. Now, it's crucial to find the right pace for further raises to avoid accelerating too much.

Bloomberg.com

Narrative B

That the Bank of Japan has approved the largest hike in its benchmark rate in nearly two decades to raise it to its highest level since 2008 may sound hawkish, but a closer look at the figures reveal a dire prospect for Japan. While interest rates are now at 0.5% and 10-year bonds at 1.2%, inflation is about to double the 2% target.