Bank of Japan Governor Kazuo Ueda delivers a speech in Tokyo's Chiyoda Ward on June 3.
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The Bank of Japan (BOJ) is preparing to raise its policy rate from about 0.75% to around 1.0%, sources said on June 9. If approved, the increase would bring the rate to its highest level since 1995, marking a 31-year high.
The BOJ is expected to make a final decision at its June 15–16 Monetary Policy Meeting, taking into account the ongoing Middle East crisis and rising inflationary pressures.
If the additional rate hike is approved, it would be the first in six months, since December 2025. The BOJ has so far judged that previous rate increases have not significantly constrained financial conditions or economic activity. At the same time, it has moved cautiously, wary that raising rates too quickly could tip the economy into a slowdown.
Growing Support Within the BOJ
At its previous meeting in April, the BOJ kept its policy rate steady to assess the economic impact of developments in the Middle East, although three board members dissented and pushed for a rate hike. Through May, other policy board members became increasingly vocal in support of raising rates.
Expectations of a hike spread rapidly after Governor Kazuo Ueda said in a June 3 speech that "it is necessary to carefully discuss the pros and cons of raising interest rates."
While government gasoline subsidies have partly cushioned the impact of rising crude oil prices, supply instability in naphtha-derived products has triggered a wave of price increases in goods such as food packaging materials and construction inputs. Within the BOJ, concerns are mounting that inflation is spreading across a wider range of goods and may be pushing up household inflation expectations—a key factor in considering a rate hike.
Inflation and Yen Weakness
Concerns over excessive yen depreciation are also seen as supporting the case for further rate hikes. The European Central Bank and the US Federal Reserve are both scheduled to hold policy meetings this week and next, with further monetary tightening expected. The BOJ's relatively low policy rate compared with these central banks remains a factor encouraging yen selling.
At the June meeting, the BOJ is also expected to outline its policy on long-term government bond purchases beyond April 2027. Opinions were split at a May meeting among bond market participants over whether to continue or halt the reduction in purchases. In his June 3 speech, Governor Ueda said the BOJ would "consider both market functioning and market stability," signaling a cautious approach to the decision.
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Author: The Sankei Shimbun
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