The Bank of Japan decided on December 19 to raise its short-term policy rate target from 0.5% to 0.75%, marking a 30-year high since 1995 and the first increase since January. The move anticipates wage hikes and aims to achieve the 2% inflation target amid elevated inflation and a weak yen.
The Bank of Japan (BOJ) decided on December 19, following a two-day meeting, to raise its short-term policy rate target from the current about 0.5% to about 0.75%. This level is the highest in 30 years since 1995 and marks the first rate increase since January.
The BOJ appears to have concluded that wage increases will be achieved in the 2026 shunto spring wage negotiations, paving the way to its 2% inflation target. However, it had kept the policy rate unchanged for six consecutive policy-setting meetings since the January hike, due to high uncertainty from the U.S. President Donald Trump administration's tariff policy.
Japan's economy faces sustained elevated inflation, a weak yen against the dollar, and falling real wages. The decision was widely expected by economists and analysts. BOJ Governor Kazuo Ueda is scheduled to speak later on Friday to provide more details.
This rate hike symbolizes a turning point for the Japanese economy, signaling a departure from prolonged low-interest policies.
