The Bank of Japan is moving toward its first policy-rate hike in 11 months, with a 25-basis-point increase from 0.5% to 0.75% emerging as the leading option for the upcoming monetary policy meeting next week, according to Nikkei.
If implemented, a 0.75% policy rate would reach a level not seen since 1995, marking the highest point in roughly 30 years. This breaches the threshold of the post-bubble era when the BOJ cut the then-key official discount rate from 1.0% to 0.5% in September 1995.
Governor Kazuo Ueda and the BOJ executive team have signaled an intention to submit the rate-hike motion. A majority of the central bank’s nine-member policy board is expected to support the proposal, including Ueda and Deputy Governors Shinichi Uchida and Ryozo Himino.
Under the BOJ’s voting rules, proposals pass with five or more votes in favor.
On the political side, Prime Minister Sanae Takaichi’s government is described as increasingly supportive of an increase.
Inflation has stayed above its 2% target for years (with core CPI still around 3% YoY), real interest rates remain meaningfully negative so it is surmised that the policy can tighten at the margin without truly turning restrictive, wage signals and a tight labor market look supportive enough to keep the price cycle going.
The planned move to raise rates would also be the first hike since January 2025, when the bank raised the short-term policy rate by 25 bps to 0.5% from 0.25%.
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