"Japan Central Bank Likely to Raise Interest Rates by 0.25%p Every Six Months"

The Bank of Japan (BOJ) raised its short-term policy rate, the benchmark interest rate, from 0.25% to 0.50%, an increase of 25 basis points (1bp = 0.01 percentage points), drawing attention to the timing and magnitude of further rate hikes, local media reported on the 25th.

In March last year, the BOJ ended its negative interest rate policy by raising rates for the first time in 17 years at the Monetary Policy Meeting, followed by consecutive rate hikes in July last year and yesterday. Considering the market turmoil immediately after the July rate hike last year, the BOJ's Governor and Deputy Governor made successive remarks hinting at rate increases ahead of this meeting.

Regarding this, the Asahi Shimbun reported that thanks to these prior announcements, the financial market's reaction yesterday was moderate, stating, "The focus of Governor Ueda's press conference yesterday was the next rate hike." However, Governor Ueda refrained from giving a definitive answer on the size and timing of additional rate hikes, saying, "We intend to carefully observe the data going forward and make judgments."

Japanese financial market experts predict that rates will rise by about 0.25 percentage points roughly every six months, reaching around 1% by next spring, according to Asahi. If the BOJ raises rates by another 0.25 percentage points, the rate will be at its highest level in 30 years since 1995. The Japanese benchmark interest rate was 6% in 1991 but has been declining since then, fluctuating between 0.5% and negative territory since September 1995. Due to this background, the Yomiuri Shimbun reported that while the BOJ is expected to raise rates up to 0.75%, it is difficult to predict hikes beyond that level.

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Asahi pointed out that the key factors in the BOJ's future rate policy decisions are the economic policies of the second Trump administration in the United States and Japan's election schedule. If the U.S. government raises tariffs as President Trump pledged, the timing of U.S. rate cuts may be delayed, potentially sustaining a weak yen and strong dollar. If the yen depreciates excessively, the BOJ may implement early rate hikes considering the sharp rise in import prices, Asahi analyzed.

Separately, Japan has an upper house election scheduled for July, and there is a possibility of rate hikes when political stability is restored after the election, the report added. A financial market expert said that if the yen/dollar exchange rate exceeds 160 yen, high inflation could become an election issue, forecasting, "Rates may be raised at the June meeting before the election."

Meanwhile, following the BOJ's rate hike, some major commercial banks such as Mitsubishi UFJ Bank and Mitsui Sumitomo Bank announced they will raise their ordinary deposit rates by 0.1 percentage points in March. The post-increase rate of 0.2% is the highest in about 17 years. Yomiuri reported that the ordinary deposit rate at Japanese commercial banks, which was 0.001% in March last year, has increased 200-fold in one year.

This content was produced with the assistance of AI translation services.