TOKYO — The Bank of Japan raised its policy rate to 1.25% from 1% on Friday — a 31-year high — in a 7–2 vote that markets had largely priced in. Dovish board members Toichiro Asada and Ayano Sato dissented, according to the central bank’s decision as reported by Reuters and The Straits Times.
The hike was the first in three months and brings the policy rate into the BOJ’s estimated 1.1%–2.5% range for Japan’s nominal neutral rate. In its statement, the BOJ said wholesale inflation remains elevated and that price pressures from business-to-business trading have started to spill into consumer prices, with underlying inflation approaching its 2% target.
What surprised traders was the currency reaction. Rather than firming on the hike, the yen sank to about 156.91 per dollar after the announcement, as investors focused on the two dissents and the absence of explicitly hawkish forward guidance, Reuters reported. BOJ Governor Kazuo Ueda later told a news conference that if risks of underlying inflation overshooting 2% materialise, that could hurt Japan’s economy — and that the bank’s policy phase has changed.
HSBC’s Fred Neumann, chief Asia economist in Hong Kong, said the statement’s tone plus the dissenters leave lingering doubts that the BOJ will stay cautious on further tightening — putting the spotlight on how soon the next move arrives.
Bottom line: Tokyo delivered the hike, but the yen’s slide shows markets still need a clearer path to the next 25 basis points — watch whether USD/JPY holds near 157 into the Tokyo close and any further Ueda comments on timing.
— WWC NEWSDESK
