The Bank of Japan (BOJ) has raised its key rate to 1%. This is the highest level since 1995. The decision was made on June 16 by a majority vote — 7 to 1.

The rate rose by 0.25 percentage points — from the previous 0.75%. Thus Japan returned to the 1% mark for the first time in 31 years and took another step away from the era of ultra-cheap money.

Why the regulator opted for a hike

The main trigger was inflation. Prices accelerated amid expensive oil, pushed up by the conflict around Iran. The Bank of Japan projected that core inflation could settle above the 2% target.

The weakness of the yen also played a role. By June, the JPY had fallen to roughly 160 per dollar, which made imports more expensive, and with them the everyday spending of Japanese households. In May, the authorities had already spent about ¥11.7 trillion, or roughly $73.5 billion, on currency interventions (buying yen to support its exchange rate), but the currency still weakened again — that measure alone was not enough.

Only one board member opposed the hike — Toyoaki Asada. He believes that the risks to production and employment are currently higher than the threat of runaway prices, and he proposed keeping the rate at 0.75%. The meeting took place without Bank of Japan Governor Kazuo Ueda, who was hospitalized last week.

What will happen to government bond purchases

In parallel, the Bank of Japan will continue to scale back its purchases of government bonds (JGB). Through January–March 2027, their monthly volume will be reduced by approximately ¥200 billion per quarter.

From April 2027, the regulator will halt the reduction and fix monthly purchases at around ¥2 trillion. By March 2030, the Bank of Japan's bond portfolio will shrink by roughly 36–39% relative to the June 2024 level, when the wind-down program was just getting underway.

At the same time, the regulator retained flexibility. If long-term rates begin to rise too quickly, the Bank of Japan is ready to step in promptly and ramp up bond purchases. The market reacted with restraint: the Nikkei 225 index added about 0.46%, and the yen strengthened slightly — to 160.22 per dollar. 

Source: BeInCrypto