The Bank of Japan (BoJ) raised its key short-term interest rate by 25 basis points to 0.5%, the highest level in 17 years, matching market expectations.
BoJ raises rate to 0.5%, hints at more hikes
This hike reflects momentum in wage growth and steady progress in inflation, marking the third rate increase since the BoJ ended its hostile interest rate policy in March 2024. The central bank also signaled the possibility of further rate hikes and a reduction in monetary support if economic and inflation data align with its forecasts. The decision was approved by an 8-1 vote, with board member Nakamura dissenting.
In its quarterly outlook, the BoJ revised its core inflation forecast for FY 2024 to 2.7%, from 2.5% in October, citing a tightening labor market.
BoJ cuts 2024 growth forecast, sees inflation easing
The bank expects inflation to moderate to 2.4% in FY 2025 and 2.0% in FY 2026. Additionally, the BoJ slightly downgraded its 2024 GDP growth forecast to 0.5% from the previous estimate of 0.6%. However, it maintained its growth outlook at 1.1% for FY 2025 and 1.0% for FY 2026.
