Bank of Japan Decides to Raise Interest Rate to 0.5%; Wage Increase Prospects, Market Trends Drive Decision (UPDATE 2)

The Yomiuri Shimbun

12:28 JST, January 24, 2025 (updated at 16:30 JST, Jan. 24)

The Bank of Japan decided Friday to raise its short-term policy rate target from the current level of about 0.25% to about 0.5%, its second hike in six months. The policy rate was last at the 0.5% level in 2008.

The BOJ apparently deemed that high levels of wage hikes would be agreed upon in the 2025 shunto spring wage negotiations, which would help lead to the realization of its inflation rate target of 2%.

The rate hike was decided on by a majority vote of the nine policy board members, including Gov. Kazuo Ueda. Only one member, Toyoaki Nakamura, voted against it. The BOJ ended its large-scale easing measures, including its negative interest rate policy, at its Monetary Policy Meeting in March last year and then decided to raise the policy rate in its July meeting.

After its December meeting, Ueda had told reporters that the bank needed a little more information for it to raise the policy rate. He then said on Jan. 15 that the decision would be made after discussions at this month’s meeting, a remark that spread speculation within markets that the rate would be increased.

The central bank believes that sustained wage increases are essential to achieving its inflation target. At a Jan. 9 meeting of general managers of BOJ branches, the bank summarized that it “received many reports that awareness of the necessity for sustained wage hikes has spread to a wide range of companies.”

Financial market trends were another driver for raising the policy rate. The markets have been stable even after the inauguration of U.S. President Donald Trump on Monday. Trump has made such statements this week as that he is considering additional tariffs on imports from China, but the impact of his comments on financial markets has been limited so far.