BOJ lifts policy rate 30-yr high of 0.75% amid persisting inflation
TOKYO, Dec. 19 Kyodo - The Bank of Japan on Friday raised its key policy rate to a 30-year-high of around 0.75 percent from 0.50 percent and left the door open for more hikes amid prospects that steady wage growth and easing economic worries will help achieve its goal of stable inflation.
The nine-member Policy Board unanimously decided at a two-day meeting to go ahead with its first interest rate hike since January, as uncertainty over the economic impact of U.S. tariffs has declined and a depreciated yen keeps inflationary pressures intact, in a further step toward policy normalization.
In financial markets, the yen briefly weakened to the lower 156 range, while the yield on the benchmark 10-year Japanese government bond rose past the 2.000 percent threshold for the first time since 2006, following the first rate increase decision since Sanae Takaichi, a proponent of monetary easing, became prime minister.
In a statement released after the meeting, the BOJ said the likelihood of realizing its baseline scenario that underlying inflation will be consistent with its 2 percent target has been rising -- a prerequisite for further hikes.
The BOJ said it judged it "appropriate" to adjust the degree of monetary accommodation to achieve the price goal, at a time when the country's core consumer prices, a key gauge of inflation, have remained at or above the 2 percent target for more than three and a half years.
While the interest rate increase is symbolic, the central bank maintains the view that monetary conditions remain accommodative after a decade of unorthodox easing aimed at beating chronic deflation.
The BOJ said in the post-meeting statement that it will continue to raise its policy rate depending on economic and price developments.
Market attention has shifted to the BOJ's next move, which could bring the short-term rate to the lower end of its neutral range, where the economy is neither stimulated nor slowed, estimated by the bank at 1 percent to 2.5 percent.
BOJ Governor Kazuo Ueda is scheduled to hold a press conference later in the day, with financial markets looking to see if he drops fresh hints as to the policy outlook.
A rate hike makes borrowing costs more expensive, slowing consumption and investment, and eventually helping stabilize prices. The step would likely strengthen the yen, lowering imports costs that have been a major driver of the current cost-push inflation.
The benchmark rate was lifted to its highest level since 1995, despite market views that Takaichi's administration had been reluctant to give its nod to such a move that could cool the economy.
But Takaichi has recently appeared tolerant of a rate increase, saying, "The specific methods of monetary policy should be left to the BOJ."
Since Takaichi took office in October, the yen has been under pressure amid concerns that her expansionary spending policy would further worsen Japan's fiscal health, triggering the selling of the currency and government bonds.
The BOJ appears to be swimming against the tide of cutting interest rates, as seen in the United States and Europe. Still, the policy rate is relatively low compared with those set by the U.S. Federal Reserve and the European Central Bank.
==Kyodo
