Bank Of Japan Hikes Interest Rate To 0.5, Highest In 17 Years

The Bank of Japan BoJ raised its key short-term interest rate by 25 basis points to 0.5 on Friday, reaching its highest level in 17 years.

The decision aligns with market expectations and reflects ongoing wage growth and steady inflation progress. This marks the BoJs third rate hike since ending its negative interest rate policy in March 2024.

The central bank signalled the possibility of further rate increases and a gradual reduction of monetary support, contingent on economic and inflation trends matching its forecasts. The decision was passed by an 8-1 vote, with board member Nakamura dissenting.

In its latest quarterly outlook, the BoJ revised its core inflation forecast for FY 2024 to 2.7, up from the 2.5 estimate in October, citing a worsening labour shortage as a contributing factor.

Inflation is expected to ease to 2.4 in FY 2025 and return to the target level of 2.0 in FY 2026. Meanwhile, the central bank slightly lowered its GDP growth projection for 2024 to 0.5 from 0.6, maintaining forecasts of 1.1 growth for FY 2025 and 1.0 for FY 2026.