The Bank of Japan held a Monetary Policy Meeting that day and decided to raise the short-term policy rate by 0.25 percentage points to 1.25%. This rate hike comes just three months after the rate was raised to 1.0% last June, marking the fastest pace of increases since Governor Kazuo took office.
The Bank of Japan has been raising interest rates since it abandoned its negative interest rate policy in March 2024. It previously raised rates by 0.25% in July 2024, 0.5% in January of last year, and 0.75% in December of last year.
The Bank of Japan has recently accelerated the pace of interest rate hikes due to mounting inflationary pressure caused by rising prices for imported energy and food, driven by recent increases in international oil prices and the weakening of the yen. U.S. Treasury Secretary Scott Bessent has also repeatedly pressed for measures to correct the yen’s weakness.
The Bank of Japan forecasts that the Consumer Price Index (CPI) will exceed 2% in the second half of fiscal year 2026 (October 2026–March 2027). The Bank of Japan stated that upward pressure on consumer prices has begun to spread and that medium- to long-term inflation expectations are expected to rise.
Today’s rate hike was approved by a vote of 7 to 2 among the nine Policy Board members. Board members Toyoichiro Asada and Ayano Sato, both considered doves, voted against the rate hike. Both members were appointed by Prime Minister Sanae Takaichi.
Since the market had widely anticipated this rate hike, attention is now turning to the pace of future increases. BOJ Governor Ueda is scheduled to hold a press conference today to explain the rationale behind this rate decision and the future direction of monetary policy.
If Governor Ueda makes hawkish remarks, pressure for monetary tightening is expected to increase, and the market impact of Secretary Bessent’s comments is likely to grow. Conversely, if Governor Ueda adopts a dovish tone, it could reignite yen weakness.
According to Bloomberg, immediately following the Bank of Japan’s benchmark rate hike, the swap market priced in a 25% probability of an additional rate hike by October and a 90% probability of another hike by December.