Bank of Japan raises interest rate to 0.5%

The Bank of Japan raised its policy interest rate to 0.5 percent from 0.25 percent, its highest level in about 17 years, amid expectations for robust wage hikes in this year's annual labor-management negotiations.
Speaking at a press conference following its board meeting, BOJ Governor Kazuo Ueda expressed a willingness to tighten monetary policy further to curb inflation, although such steps could hinder domestic economic growth as consumption and investment shrink.
"Underlying inflation keeps rising gradually in line with our predictions," Ueda said, adding the financial environment remains accommodative even after a hike to a level not seen since October 2008, when a banking crisis shook the global economy.
"We will carefully monitor the impact of the latest interest rate hike" on economic and price conditions before considering the next increase, he said, without specifying how high the policy rate should go down the road.
The bank also lifted its projections for the core consumer price index, excluding volatile fresh food, for the three years through fiscal 2026 in its latest outlook released the same day, citing a recent surge in rice prices and a weaker yen pushing up prices of imports.
The BOJ now estimates that the index will grow 2.7 percent in fiscal 2024, 2.4 percent in fiscal 2025 and 2.0 percent in fiscal 2026, compared with the previous forecasts of 2.5 percent, 1.9 percent and 1.9 percent, respectively.
The rate hike was decided in an 8 to 1 vote at the bank's Policy Board. The sole opponent, Toyoaki Nakamura, said the BOJ should confirm a rise in corporate earnings momentum before lifting rates.
The central bank's first rate increase since July last year came as its Policy Board grew more confident about another round of sharp pay hikes in this year's "shunto" wage talks, which are likely to play a key role in alleviating the adverse effects of inflation.