The Bank of Japan has decided to elevate its benchmark interest rate to approximately 0.25%, up from its previous range of 0% to 0.1%. In addition to this adjustment, the central bank revealed its strategy to taper its bond buying program.
As part of this plan, the Bank of Japan disclosed that it intends to decrease the monthly outright purchases of Japanese government bonds to roughly 3 trillion yen per month during the January to March 2026 quarter. The institution specified that the amount will undergo a reduction of approximately 400 billion yen per quarter.
The Japanese yen saw a significant uptick, rising by up to 0.8% to reach a more than three-month peak of 151.58 per dollar immediately following an announcement, only to later relinquish those gains. Concurrently, yields on the 10-year Japanese government bonds experienced a minor decline in response to the news.
The Bank of Japan (BOJ) attributed its rate hike to the expanding trend of wage increases, indicating that this development was prompting companies to transmit elevated labor expenses by raising service prices.
In its statement, the BOJ highlighted the persistent acceleration in import prices, despite some recent easing, emphasizing the necessity to remain vigilant against the potential threat of inflation surpassing expectations.
