Bank of Japan Leaves Door Open for Further Rate Hikes After 1% Increase
The Bank of Japan has left the possibility of further rate hikes open after raising its policy interest rate to approximately 1.0%. This decision is based on the assessment that the situation in the Middle East and rising oil prices could push Japan's inflation above 2%. Bank of Japan Deputy Governor Ryozo Himino explained during a meeting of the House of Representatives' Financial Affairs Committee in Tokyo on June 19 that while the Japanese economy is gradually recovering, some weaknesses have emerged due to the Middle East situation. The consumer price inflation rate has recently been around 1.5%, but he noted that if oil prices rise, energy and commodity prices could exceed 2%. The Bank of Japan raised its policy interest rate to 1.0% during the same week's monetary policy meeting and stated that it would consider further increases and adjustments to monetary easing based on economic, price, and financial conditions. The Bank plans to maintain its bond purchase reduction plan until March 2027 and aims to keep its monthly Japanese government bond purchases at around 2 trillion yen starting in April 2027. In its July economic and price outlook report, it projected the CPI excluding fresh food to rise by +2.5% in the fiscal year 2026, +2.4% in fiscal year 2027, and +2.0% in fiscal year 2028. The market reaction immediately following the rate hike was limited, with the yen initially strengthening before retreating to around 160 yen per dollar.
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