Japan raises interest rates to highest level since 2008

Accordingly, at the recently concluded two-day meeting, the BOJ Board of Directors decided to raise the overnight interest rate from 0-0.1% to 0.25%. This short-term policy interest rate is now the highest since 2008.

The rate hike shattered market expectations, was the biggest since 2007 and came just months after the BOJ ended eight years of negative interest rates.

BOJ Governor Kazuo Ueda did not rule out another rate hike this year, stressing that the bank is ready to continue raising borrowing costs to levels deemed unsustainable for the economy.

"By raising interest rates from a very low level and adjusting the level of stimulus gradually, we can avoid the risk of having to make large adjustments in a short period of time," Ueda told a news conference when asked about the possibility of raising interest rates again this year.

The BOJ under Ueda has raised interest rates by a total of 35 basis points in just four months. Today’s hike is the biggest since a 25 basis point hike in February 2007, which was seen as the last major policy tightening before a long era of massive monetary stimulus aimed at reviving sluggish consumer demand.

The yen jumped immediately after Mr. Ueda's remarks at the press conference, gaining more than 1% to an intraday high of 150.61 yen per dollar, its strongest level since March 2024.

Japan's shift to tighter monetary policy contrasts with rate cuts in other major economies, with the US Federal Reserve expected to signal a rate cut in September as price pressures in the country ease.

In a sign that Mr. Ueda is drawing a line under the ultra-loose policies of the past, the BOJ also announced plans to scale back its massive bond-buying program, halving monthly bond purchases to 3 trillion yen ($19.6 billion) from early 2026.

After buying bonds aggressively to revive growth since 2013, the BOJ now owns about half of all Japanese government bonds (JGBs) sold on the market.

Bank of Japan Governor Kazuo Ueda speaks at a news conference after a policy meeting in Tokyo, Japan, July 31, 2024. (Photo: Reuters)

The central bank must be careful in scaling back to avoid upsetting markets accustomed to its large presence and triggering a spike in yields, raising the cost of financing Japan's huge public debt.

Mr. Ueda identified a weak yen as a risk to the BOJ's inflation forecast and said the 0.5% threshold was not a barrier to raising interest rates, if necessary.

His comments helped push the yen up more than 1% and short-term bond yields rose to a 15-year high, while Japanese bank shares jumped, helping the Nikkei average reverse earlier losses.

In its quarterly outlook report released the same day, the BOJ maintained its forecast made in April that inflation would remain at around 2% until fiscal 2026.

But the BOJ said import prices were accelerating again despite some recent adjustments, underscoring the need to remain vigilant against the risk of overshooting inflation.

The BOJ also warned that inflation could be more affected by yen movements than previously, signaling concerns about rising inflationary pressures from the currency's decline.

Source: https://nhandan.vn/nhat-ban-tang-lai-suat-len-muc-cao-nhat-ke-tu-nam-2008-post821994.html