The Bank of Japan (BoJ) raised its short-term interest rate to 0.5% on Friday, the highest level since the 2008 financial crisis, as part of efforts to stabilize inflation at 2% amid rising wages and improving economic conditions. This marks the BoJ's third rate hike since ending its negative interest rate policy in March 2024.
The decision, backed by an 8-1 vote, reflects the central bank’s growing confidence in wage-driven inflation and economic stability. Policymakers emphasized that real interest rates remain negative, supporting economic activity, while signaling the potential for further hikes if inflation and growth align with projections.
BoJ forecasts indicate consumer inflation (excluding fresh food) will reach 2.7% in the year ending March 2026. It predicts that the measure of inflation will rise 2.4% in the year ending March 2026 and 2.0% in the following year. Economic growth is expected to hit 0.5% this fiscal year, improving to 1.1% in the year ending March 2026.
Economists predict the next rate hike to 0.75% could occur by September, as the BoJ maintains a cautious approach to policy tightening amid global and domestic uncertainties.