Updated. (Updates with Uchida press conference in third paragraph)
The Bank of Japan (BoJ) raised its policy rate by 25 basis points to 1% on 16 Jun – the highest level since 1995 – citing risks that oil-driven inflation will spread to consumer prices and push underlying inflation above its 2% target.
The 7-1 decision drew a dissent from board member Toichiro Asada, who argued downside risks to output and employment outweighed upside risks to prices. Governor Kazuo Ueda, hospitalized last week for an infected liver cyst, submitted his views in writing but did not vote, the BoJ said.
At a press conference, Deputy Governor Shinichi Uchida pledged that the BoJ would not "fall behind the curve" as underlying inflation approached the 2% target. He warned that pass-through from the weak yen could grow as companies more actively set wages and prices, and framed the decision as "consistent with what the government is doing."
The yen traded at ¥160.23 against the dollar after the decision, returning to levels that prompted the Ministry of Finance's record ¥11.7tn ($73bn) intervention in April and May. The Nikkei 225 climbed above 70,000 points for the first time, as the weak yen and a Wall Street tech rally lifted exporters.
Charu Chanana, chief investment strategist at Saxo in Singapore, told Reuters the hike "was not hawkish enough to force a major yen repricing."
In a separate move, the board agreed to halt its long-running bond purchase taper from April 2027, keeping monthly buying steady at around ¥2tn ($12bn), over a dissent from board member Naoki Tamura, who wanted the taper to continue through the first quarter of 2028.
The rate increase adds direct pressure to yen-funded carry trades, a popular strategy in which investors borrow in yen to buy higher-yielding assets, such as cryptocurrencies. Bitcoin (BTC) fell from around $65,000 to below $50,000 in the days after the BoJ's July 2024 hike. Japanese listed Bitcoin treasury firms such as Metaplanet, which have financed purchases through debt and equity issuance, now face higher yen funding costs.
A Bloomberg survey of BoJ watchers points to roughly one hike every six months. However, former BoJ chief economist Hideo Hayakawa told Bloomberg the next move could come as soon as October. Prime Minister Sanae Takaichi, who favours accommodative policy, recently urged Governor Ueda to align policy with government measures.
