Bank of Japan Hikes Interest Rates to 15-Year High, Plans to Scale Back Bond Purchases
Japan: The Bank of Japan raised interest rates to levels unseen in 15 years and revealed a detailed plan to slow its massive bond-buying program, marking a significant step towards ending a decade of substantial stimulus. This rate hike, the largest since 2007, defied market expectations for no change and followed the recent termination of eight years of negative interest rates. BOJ Governor Kazuo Ueda indicated the possibility of another rate increase this year and emphasized the bank's readiness to continue raising borrowing costs to neutral levels for the economy. The hawkish remarks caused the dollar to fall below 151 yen for the first time since March, as markets recognized that Japan is now considering a comprehensive rate hike cycle. This shift to tighter monetary policy in Japan stands in stark contrast to the trend of lowering interest rates in other major economies, with the Federal Reserve expected to signal a potential rate cut in September as U.S. inflation pressures ease.
The BOJ board voted 7-2 to raise the overnight call rate target to 0.25% from 0-0.1%. The short-term policy rate is now at its highest since 2008. Additionally, the BOJ decided on a quantitative tightening (QT) plan, which will halve monthly bond purchases to 3 trillion yen ($19.6 billion) by January-March 2026. This measure aims to reduce the BOJ's $3.9 trillion balance sheet by up to 8%, signaling a retreat from the controversial bond-buying era that began in 2013 and is often criticized for distorting Japan's markets.
Source: Bank of Japan