According to Kyodo News and Reuters, the Bank of Japan decided to increase its policy rate target for the uncollateralized overnight call rate from approximately 0.75% to around 1.0% during the two-day monetary policy meeting that began the previous day.
This marks the first time Japan's key interest rate has reached the 1% level since September 1995, with the decision passing by a vote of 7 to 1.
Since ending its negative interest rate policy in March 2024, the Bank of Japan has gradually raised rates, with this being the fourth increase since December of the previous year.
Prior to the meeting, the Bank of Japan had been monitoring the potential for Middle Eastern conflicts to drive up oil prices and impact the yen, which could further fuel inflation. The ongoing transfer of costs by businesses has raised concerns that inflationary pressures could spread across consumer prices.
However, there were dissenting opinions. Policy board member Doichiro Asada argued that the risks of the Middle East situation dampening production and employment outweigh the inflation risks, suggesting that keeping rates steady would be preferable.
The Bank of Japan indicated that it would continue to adjust the policy rate based on economic, price, and financial conditions, leaving the door open for further rate increases.
Bank of Japan Governor Kazuo Ueda was unable to attend the meeting due to hospitalization for treatment of a viral infection and did not participate in the vote.
Regarding its plans to reduce government bond purchases, the Bank of Japan stated it would continue to decrease monthly purchase amounts quarterly until March 2027, after which it plans to maintain a purchase scale of approximately 2 trillion yen per month.
* This article has been translated by AI.
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