BOJ Hikes Rates to 31-Year High, Fails to Boost Yen

The Bank of Japan has raised interest rates to their highest level in 31 years, with a 7-2 vote decision. The new rate is 1.25%, up from 1%. However, this move did not boost the yen, as investors focused on the lack of explicit hawkish guidance and two dovish dissenting board members.

The BOJ's decision follows similar moves by European and US central banks to combat inflation pressures driven by soaring oil costs. The Bank of Japan has been gradually raising interest rates since exiting its decade-long stimulus in 2024, aiming for a neutral rate that neither cools nor overheats growth.

Analysts polled by Reuters expect the BOJ to hike rates to 1.5% by end-March next year and then to 1.75% in the second quarter of 2027, with most seeing the terminal rate as at least 1.75%. The Bank of Japan's Governor Kazuo Ueda is set to hold a news conference later today for further guidance on the pace and timing of future rate hikes.

The BOJ's decision comes after core consumer inflation held steady near the BOJ's 2% target in August, as companies continued to pass on rising costs for food and grocery items.