Bank of Japan raises policy rate to highest since 2008

The Bank of Japan (BoJ) increased its key short-term interest rate by 25 basis points to 0.5%, the highest level in 17 years, aligning with market expectations.

Bank of Japan raises policy rate to highest since 2008

This decision reflected momentum in wage growth and steady inflation progress. It marked the third rate hike since the central bank ended its negative interest rate policy in March 2024. The BoJ also signaled the possibility of further rate increases and reduced monetary support if economic and price trends meet its projections. The decision, made on Friday, passed with an 8-1 vote, with board member Nakamura dissenting.

New outlook

In its quarterly outlook, the BoJ raised its FY 2024 core inflation forecast to 2.7%, up from October’s estimate of 2.5%, citing a worsening labor shortage. Core inflation is expected to ease to 2.4% in FY 2025 and 2.0% in FY 2026. The central bank also slightly lowered its 2024 GDP growth projection to 0.5% from 0.6%, while maintaining growth forecasts of 1.1% for FY 2025 and 1.0% for FY 2026.