{"id":900560,"date":"2026-09-18T15:06:13","date_gmt":"2026-09-18T15:06:13","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/900560\/"},"modified":"2026-09-18T15:06:13","modified_gmt":"2026-09-18T15:06:13","slug":"bank-of-japan-lifts-rate-to-31-year-high-as-it-pivots-to-managing-inflation-risks","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/900560\/","title":{"rendered":"Bank of Japan lifts rate to 31-year high as it pivots to managing inflation risks"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

A Japanese flag flutters at the Bank of Japan headquarters in Tokyo in 2022. The central bank raised its key interest rate to 1.25 per cent on Friday.Shuji Kajiyama\/The Associated Press<\/p>\n

The Bank of Japan raised interest rates to a 31-year high on Friday, with its governor signalling the central bank has entered a new phase focused on preventing inflation from overshooting its target, opening the door to further rate hikes.<\/p>\n

But the hawkish message failed to rally the yen. Instead, the currency weakened as investors seized on dissent from two policy-makers who argued the BOJ should remain patient in raising borrowing costs.<\/p>\n

BOJ Governor Kazuo Ueda said with underlying inflation approaching 2 per cent, the bank\u2019s focus had shifted from pushing prices up to target to guarding against an inflation overshoot.<\/p>\n

\u201cIf risks of underlying inflation overshooting 2 per cent materialize, that could have a negative impact on Japan\u2019s economy,\u201d he told a news conference.<\/p>\n

\u201cIt\u2019s important to stabilize underlying inflation at 2 per cent. Our policy phase has changed,\u201d Ueda said in his strongest remark to date on the central bank\u2019s resolve to combat price pressures through continued rate hikes.<\/p>\n

Ueda said he would not rule out either back-to-back rate hikes or increases of 50 basis points. He stressed, however, that the BOJ aims to act pre-emptively to avoid being forced into large moves that could unsettle financial markets.<\/p>\n

\u201cUeda\u2019s message appears to be that the BOJ is keeping its option of further rate hikes open and keeping close watch on inflation to stabilize it,\u201d said Vasu Menon, managing director of investment strategy at OCBC in Singapore.<\/p>\n

\u201cOverall, the BOJ\u2019s decision and Ueda\u2019s comments point to a modestly hawkish medium-term stance. However, the near-term message is not hawkish enough to trigger a significant repricing of the yen.\u201d<\/p>\n

Yen\u2019s tide turns as traders rethink years-long bets against the currency<\/a><\/p>\n

At the two-day meeting ending on Friday, the BOJ raised its policy rate to 1.25 per cent from 1 per cent by a 7-2 vote. Dovish board members Toichiro Asada and Ayano Sato, newcomers appointed by dovish Prime Minister Sanae Takaichi, dissented from the decision.<\/p>\n

The move follows rate hikes by its European<\/a> and U.S. peers<\/a>, highlighting central banks\u2019 focus on global inflation risks caused by the Iran war-induced energy cost spike, expansionary fiscal policies and surging demand for AI investment.<\/p>\n

It was the first hike in three months and takes interest rates closer to levels the BOJ deems neutral to the economy, marking another step away from decades of ultralow rates that cemented the yen\u2019s status as a cheap global funding currency.<\/p>\n

The BOJ said while economic and price developments are moving in line with its baseline forecast, there was a risk of underlying inflation deviating from its 2-per-cent target.<\/p>\n

\u201cWholesale inflation remains elevated and price pressures from business-to-business trading have started to spill over into consumer prices,\u201d it said in a statement.<\/p>\n

The central bank also said financial conditions remained accommodative even after Friday\u2019s rate hike.<\/p>\n

Lagging peers<\/p>\n

The BOJ exited a decade-long stimulus in 2024 and has raised rates several times, including in June, at a pace of roughly twice a year on the view that Japan was making progress in durably achieving its 2-per-cent inflation target.<\/p>\n

Friday\u2019s hike to 1.25 per cent brings the rate within the BOJ\u2019s estimated 1.1 per cent to 2.5 per cent range of Japan\u2019s nominal neutral rate, or the level that neither cools nor overheats growth, raising questions about how far it could eventually hike rates.<\/p>\n

The yen\u2019s sudden surge upsets the carry trade faithful<\/a><\/p>\n

But the BOJ remains well behind its peers, with rates below the European Central Bank\u2019s 2.5 per cent and the Fed\u2019s 3.75 per cent to 4.00 per cent range. With other major central banks tightening, markets are focused on whether the BOJ will need to raise rates faster to curb yen-driven inflation.<\/p>\n

Ueda said it was hard to pre-judge where Japan\u2019s neutral or terminal rates sat.<\/p>\n

\u201cWe\u2019re in a phase where we need to look at various data carefully,\u201d he said. \u201cBut that doesn\u2019t mean we can move slowly.\u201d<\/p>\n

\u201cGovernor Ueda sounded on the hawkish side,\u201d said Jessica Hinds, director of Economics at Fitch Ratings. \u201cWhile he refused to be drawn on the specific pace of rate hikes or where rates will end up, this suggests to us that the acceleration in the pace of rate hikes is likely to be sustained.\u201d<\/p>\n

Analysts polled by Reuters expect the BOJ to hike rates to 1.5 per cent by end-March next year and to 1.75 per cent in the second quarter of 2027. Most saw the terminal rate as being at least 1.75 per cent.<\/p>\n

Political complication<\/p>\n

Markets had nearly fully priced in a September rate hike after a slew of hawkish BOJ signals, including its warning in July of the risk of an inflation overshoot.<\/p>\n

U.S. Treasury Secretary Scott Bessent also piled in, voicing his support for \u201cdecisive\u201d monetary steps to combat yen weakness in a meeting with Ueda this month.<\/p>\n

Prime Minister Takaichi, meanwhile, has moved to cement her influence over economic policy, reappointing reflationist ally Minoru Kiuchi as economy minister, a role that grants him access to BOJ meetings.<\/p>\n

While the two Takaichi-appointed dovish dissenters remain a minority in the hawkish-leaning board, such political factors may affect the pace of future BOJ rate hikes, some analysts say.<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: A Japanese flag flutters at the Bank of Japan headquarters in Tokyo in…\n","protected":false},"author":2,"featured_media":900561,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[901,888,902,879,877,903,45,49,48,876,895,896,891,878,875,46,549,295,894,887,914,880,881,893,889,890,884,904,885,909,910,912,907,911,905,908,882,898,899,714,897,906,865,61,900,892,886,883,913],"class_list":["post-900560","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-alberta","tag-arts-news","tag-bc","tag-breaking-news","tag-breaking-news-video","tag-british-columbia","tag-business","tag-ca","tag-canada","tag-canada-news","tag-canada-sports","tag-canada-sports-news","tag-canada-trafficcanada-weather","tag-canadian-breaking-news","tag-canadian-news","tag-economy","tag-education","tag-environment","tag-federal-government","tag-foreign-news","tag-globe-and-mail","tag-globe-and-mail-breaking-news","tag-globe-and-mail-canada-news","tag-government","tag-life-news","tag-lifestyle","tag-local-news","tag-manitoba","tag-national-news","tag-new-brunswick","tag-newfoundland-and-labrador","tag-northwest-territories","tag-nova-scotia","tag-nunavut","tag-ontario","tag-pei","tag-photos","tag-political-news","tag-political-opinion","tag-politics","tag-politics-news","tag-quebec","tag-sports-news","tag-technology","tag-travel","tag-trudeau","tag-us-news","tag-world-news","tag-yukon"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/900560","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=900560"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/900560\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/900561"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=900560"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=900560"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=900560"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}