Bank Of Japan raises rates by 25 basis points to the highest in over three decades

The Bank of Japan raised interest rates by 25 basis points in a widely expected action on Friday and signaled readiness for further tightening.

Japanese central bank joined other major central banks in fight with rising inflation, primarily driven by soaring energy prices.

BOJ policymakers voted 7-2 to lift the policy rate from 1% to 1.25% – the highest in over three decades, making one more step away from decades of ultra-low rates that kept the yen’s status as a cheap global funding currency.

In a press conference after the meeting, BOJ Governor Kazuo Ueda said that the bank’s policy focus had shifted as underlying inflation is approaching 2%, despite that economic and price developments are moving in line with BOJ’s baseline forecast and pointed to growing risk of inflation overshooting target that could have a negative impact on Japan’s economy.

From that perspective, central bank’s primary task will be to stabilize underlying inflation at 2%.

However, Japanese yen failed to positively react on BOJ’s decision and even fell against its major peers, as investors focused on a lack of explicitly hawkish guidance and that the vote was not unanimous, as two dovish policymakers favored more patience in pushing up borrowing costs.