BOJ Hikes Rates Amid Dovish Tinge

The Bank of Japan (BOJ) has increased interest rates by 25 basis points to 1.25%, but the decision was not without controversy as two board members dissented against the move.

Toichiro Asada and Ayano Sato argued that economic conditions were not strong enough to justify a rate hike, preferring to leave policy unchanged. Their dissent adds a dovish tinge to the increase, which has led to yen weakness and a Nikkei rally.

The BOJ's decision is seen as a step towards reining in inflation, but risks remain tilted to the upside with underlying CPI inflation approaching 2% and wage increases being passed through to selling prices. The Bank retains its view that labour shortages are acute, helping foster the wage-price cycle further.