The Bank of Japan (BOJ) raised interest rates on Friday to levels unseen in three decades and signalled its readiness for further hikes, taking another landmark step in ending decades of huge monetary support and near-zero borrowing costs.
It also removed language that growth and inflation will stagnate due to the impact of higher US tariffs, underscoring the central bank’s conviction that Japan was on course to stably hit its 2 per cent inflation target backed by wage gains, and ready for a continued normalisation of monetary policy.
“Judging from recent data and surveys, there is a high chance the mechanism in which wages and inflation rise moderately in tandem will be sustained,” the BOJ said in a statement in explaining the rate-hike decision.
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“Given that real interest rates are at significantly low levels, the BOJ will continue to raise interest rates” if its economic and price forecasts materialise, it said.
In a widely expected move, the BOJ raised short-term interest rates to 0.75 per cent from 0.5 per cent in the first increase since January. The decision was made by a unanimous vote.
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The move takes interest rates to levels unseen since 1995, when Japan was reeling from the burst of an asset-inflated bubble that drew the BOJ into a prolonged battle with deflation.