BOJ Slams Brakes on Yen with Record-High Rate Hike

The Bank of Japan raised interest rates to a 31-year high on September 18th, signaling its readiness to continue pushing up borrowing costs. The widely expected move takes interest rates closer to levels deemed neutral to the economy and marks another step away from decades of ultra-low rates that have cemented the yen's status as a cheap global funding currency.

The BOJ raised its policy rate to 1.25 per cent from 1 per cent by a 7-2 vote, with dovish board members Toichiro Asada and Ayano Sato dissenting to the decision. The bank cited elevated wholesale inflation and the spillover of price pressures from business-to-business trading into consumer prices.

While economic and price developments are moving in line with the BOJ's baseline forecast, there is a risk of underlying inflation deviating from its 2 per cent target. Markets are focusing on BOJ Governor Kazuo Ueda's news conference for clues on the pace and timing of future rate hikes.