Tokyo July 31 2024: The Bank of Japan raised interest rates in a mostly unexpected move on Wednesday and unveiled a detailed plan to slow its massive bond buying, taking another step towards phasing out a decade of huge stimulus.
The decision, which defied dominant market expectations for the BOJ to stand pat on rates, takes its short-term policy rate to levels unseen since 2008.
At the two-day meeting ending on Wednesday, the BOJ’s board decided to raise the overnight call rate target to 0.25% from 0-0.1% in a 7-2 vote.
It also decided on a quantitative tightening (QT) plan that would roughly halve monthly bond buying to 3 trillion yen ($19.6 billion), from the current 6 trillion yen, as of January-March 2026.
Japan’s shift to tighter monetary policy contrasts sharply with the broad swing to lower interest rates by other major economies, with the Federal Reserve increasingly likely to cut rates in September as U.S. price pressures moderate.
“Despite sluggish consumer spending, monetary officials sent a decisive signal by raising interest rates and allowing for a more gradual balance sheet reduction,” said Fred Neumann, chief Asia economist at HSBC.
“Rising inflation expectations also open the path for ongoing monetary policy normalisation by the BOJ. Barring major disruptions, the BOJ is on course to tighten further, with another interest hike by the start of next year,” he said.
