The Bank of Japan raised its benchmark interest rate to around 0.25% on Wednesday. This is the highest rate since October 2008. The central bank also plans to reduce its monthly purchases of Japanese government bonds.
It will cut these purchases to about 3 trillion yen ($19.64 billion) per month by early 2026. This is down from the current level of about 6 trillion yen per month. The BOJ expects core inflation to reach 2.5% by the end of fiscal year 2024.
It forecasts inflation will be around 2% in fiscal years 2025 and 2026. The bank said it will keep raising rates if the economy performs as expected. Following the rate hike, the Nikkei and Topix stock indexes gained.
Bank of Japan policy shift
The yen also strengthened slightly against the dollar. The BOJ said Japan’s economy is developing generally in line with its outlook.
Wages are rising not just at large firms but also at smaller companies. Business investment is increasing moderately. Corporate profits are improving.
Private spending has been resilient despite higher prices. However, the bank did lower its GDP forecast for fiscal 2024 to a range of 0.5%-0.7%. This is down from its April forecast of 0.7%-1.0%.
The revision was due to recent downward adjustments to 2023 GDP figures. GDP and inflation expectations for fiscal 2025 and 2026 were largely unchanged.
