Bank of Japan lifts key rate to 0.75%

The Bank of Japan on Tuesday raised its benchmark interest rate by 0.25 percentage points to 0.75 percent from 0.5 percent. It marked the first time Japan’s policy rate has exceeded 0.5 percent since 1995, ending a 30-year span. The central bank also signaled the possibility of additional rate hikes next year, depending on economic and price conditions. Attention is focused on whether Japan will continue tightening monetary policy after finally breaking through the 0.5 percent threshold that it had been unable to surpass amid prolonged deflation following the collapse of the asset bubble in the early 1990s.

According to Asahi Shimbun and other Japanese media outlets, the Bank of Japan unanimously decided at a two-day monetary policy meeting that concluded Monday to raise the short-term policy rate by 0.25 percentage points to 0.75 percent. All nine members of the policy board voted in favor of the decision.

The rate increase is widely viewed as reflecting solid corporate earnings. It is also seen as signaling confidence in Japan’s economic recovery and a determination to rein in rising prices driven by the weak yen. At a news conference, BOJ Gov. Kazuo Ueda said corporate profits remain at high levels despite the impact of U.S. tariffs and that prices are continuing to rise at a moderate pace. He added that even after the rate hike, real interest rates remain negative, meaning accommodative financial conditions will be maintained.

Ueda also pointed to the possibility of further increases, saying the central bank would adjust monetary easing if prices continue to move in line with its 2 percent inflation target.

Japan cut its policy rate from 1 percent to 0.5 percent in 1995 and has since maintained a low-rate stance amid prolonged economic stagnation and deflation often referred to as the lost 30 years. While there were concerns that the rate hike could trigger an unwinding of yen carry trades, Asian stock markets showed little sign of disruption.

South Korea’s Kospi closed at 4,020.55, up 0.65 percent from the previous session, reclaiming the 4,000 mark after one day. The Kosdaq rose 1.55 percent. Japan’s Nikkei 225 gained 1.03 percent, while Taiwan’s Taiex index advanced 0.83 percent.


안규영 kyu0@donga.com