The Bank of Japan (BOJ) announced a 25 basis point rate hike on Friday, lifting its unsecured overnight call rate to 0.75%—the highest level since 1995.
The decision, made after a two-day policy meeting, was approved unanimously 9-0, fully aligning with market expectations. All 50 economists surveyed had predicted the BOJ would raise rates, marking the first unanimous "all-in bet on tightening" under Governor Kazuo Ueda's leadership.
Following the announcement, the yen briefly strengthened against the dollar before retreating, falling below 156 with a 0.3% intraday decline. Market reactions indicated the hike had been largely priced in, confirming the central bank's stance that the adjustment does not signal a shift from accommodative policy but rather a step in "gradual normalization."
The move was not unexpected. Governor Ueda had recently signaled clear policy hints, suggesting conditions for tightening were ripening—paving the way for market anticipation. With inflation trends stabilizing and policy communication becoming more transparent, the BOJ opted for a measured approach to normalization.
Ueda is scheduled to hold a press conference at 3:30 PM local time (2:30 PM Beijing time) to elaborate on the decision and future rate paths. Markets broadly expect the BOJ to maintain a cautious, data-dependent tightening pace rather than aggressive moves.
**Reiterating Forward Guidance** The policy statement emphasized that further rate hikes are anticipated if economic and price developments align with current projections.
The BOJ noted it would adjust policy gradually based on improvements in economic activity and prices while maintaining accommodative conditions to support recovery. It also highlighted rising confidence in achieving its *Economic and Price Outlook* targets.
On inflation, the central bank observed core CPI continues to rise moderately, broadly matching its second-half outlook. Despite the nominal rate increase, real rates are expected to remain deeply negative, ensuring financial conditions stay loose without significantly constraining growth.
**Political Uncertainty Eases, Clearing Path for Hikes** Notably, domestic political risks had clouded the policy outlook since October.
The appointment of Sanae Takaichi—a perceived monetary dove—as prime minister initially raised concerns about government resistance to normalization. However, analysts note persistent inflation pressures and the political cost of a weak yen have kept the administration from opposing the hike, granting Ueda room to proceed.
**Economic and Wage Data Back the Move** Fundamentals also supported the decision.
Recent indicators show U.S. tariff policies under former President Trump have yet to materially impact Japan’s economy. Meanwhile, major unions’ wage hike targets for the upcoming spring labor talks remain near last year’s levels—when negotiations delivered the largest pay increases in decades—suggesting wage momentum persists.
This marks Ueda’s first rate hike since January, underscoring his commitment to normalization as the "inflation-wages-policy" virtuous cycle takes shape.
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