Bank of Japan Raises Key Interest Rate to 1%... Highest Level in 31 Years, Sparking Fears of Global 'Domino' Rate Hikes

The Bank of Japan (BOJ), the country's central bank, has raised its benchmark interest rate for the first time in six months.

According to reports from Kyodo News and other outlets, the BOJ decided during its two-day monetary policy meeting, which concluded yesterday, to raise the short-term policy rate from the current "around 0.75%" to "around 1%," an increase of 0.25 percentage points.

This brings Japan's benchmark interest rate to its highest level in 31 years, since September 1995.

Starting with the end of its negative interest rate policy in March 2024—the first such move in 17 years—the BOJ raised the benchmark rate from the 0–0.1% range to "around 0.25%" in July of the same year.

The rate was subsequently raised to "around 0.5%" in January of last year and to "around 0.75%" in December of that same year.

Prior to the meeting, market expectations were largely centered on the BOJ raising its policy rate.

[Voice] The decision is analyzed to be based on the judgment that the risks of inflation are greater than the possibility of an economic downturn caused by the instability in the Middle East.

This is because Japan's corporate goods price index rose by over 6% in May, and consumer prices also significantly exceeded the 2% target.

[Voice] In its policy statement released today, the BOJ signaled that it would continue its trend of interest rate hikes, stating that regarding future monetary policy, it will "continue to raise the policy interest rate and adjust the degree of monetary easing in accordance with economic, price, and financial conditions."

With inflation rising due to prolonged instability in the Middle East and energy price hikes originating from the Strait of Hormuz, attention is focused on whether central banks around the world will enter a full-scale cycle of interest rate hikes.

On the 11th, the European Central Bank also raised its deposit rate by 0.25 percentage points to 2.25% per annum, marking a shift toward a tightening stance for the first time in about three years. The Bank of Korea has also signaled the possibility of a rate hike ahead of its Monetary Policy Committee meeting scheduled for July 16.

Attention is also focused on whether the U.S. Federal Reserve will send hawkish signals regarding future rate hikes at its Federal Open Market Committee (FOMC) meeting, which is being held on June 16–17 (local time).

Meanwhile, as the BOJ's rate hike becomes a reality, there are concerns that it will have a significant impact on global financial markets as the scale of the "yen carry trade"—where investors borrow low-interest yen to invest in overseas assets—is expected to shrink.

Reported by Lee Hyeon-yeong | Video by Kim Na-on | Graphics by Yang Hye-min | Produced by SBS Digital News
※ Please note: This article was translated by AI and may contain errors.