Bank of Japan increases interest rate by 25 basis points

(MENAFN) On Friday, the Bank of Japan raised its policy interest rate by 25 basis points, increasing it from 0.25 percent to 0.5 percent. This marks the highest level for the rate since October 2008. The central bank’s decision came amid positive economic growth projections, with the bank stating that Japan’s economy is expected to continue growing at a rate above its potential growth. This growth is supported by moderate expansion in overseas economies and a positive feedback loop between income and spending, facilitated by favorable financial conditions.

The Bank of Japan also projected that consumer inflation will reach approximately 2.5 percent for fiscal 2025, driven in part by higher import prices resulting from the depreciation of the yen. The bank indicated that these inflationary pressures are largely tied to global commodity prices and exchange rate fluctuations. The overall economic outlook remains stable, but the bank acknowledged that there are various uncertainties that could influence future developments.

In its statement, the Bank of Japan noted that global financial and capital markets have remained largely stable, despite ongoing challenges and concerns. However, it pointed out that attention must be paid to emerging risks, particularly in the context of broader global economic conditions. This reflects the bank's cautious approach to managing economic stability amid external pressures.

Historically, the Bank of Japan had maintained low or negative interest rates as part of its monetary policy to stimulate growth. Despite similar rate hikes by other major central banks, the Bank of Japan had kept its rate at -0.1 percent since 2015. It began to shift its policy last March, raising the rate to 0.1 percent, followed by a hike to 0.25 percent in July, culminating in the recent increase to 0.5 percent.

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