BoJ Hikes Rates to 1.25%, Paves Way for Stronger Yen

The Bank of Japan (BoJ) has raised its short-term policy rate by 25 basis points to 1.25% from 1.00%, a move that was widely expected and met with a 7-2 vote.

According to the BoJ, Japan's economy is recovering moderately and should continue growing at a moderate pace, while financial conditions remain accommodative and will stay so after the rate hike.

The central bank noted that CPI has been rising in a 1.5-2.0% range, inflation expectations are increasing moderately, and underlying inflation is approaching 2%, with wholesale inflation still elevated due to factors such as oil prices and AI-related demand.

Policy guidance maintained a tightening bias, with the BoJ indicating that it will continue to raise rates in response to economic and price developments and financial conditions, while weighing timing and pace against its baseline scenario and risks.