The Bank of Japan raised its target for the uncollateralised overnight call rate to around 1.25% on 18 September. The Policy Board approved the increase from 1% by a 7–2 vote. The new guideline takes effect on 24 September. Reuters described the new level as the highest in 31 years.
The central bank said underlying consumer-price inflation had been approaching its 2% stability target while financial conditions remained accommodative. It reported that core inflation, excluding fresh food, had recently been in a 1.5%–2.0% range. Producer-price growth remained high as stronger global demand for artificial-intelligence products, elevated crude oil prices and a weaker yen affected costs. The bank said Japan’s economy had recovered moderately, although some weakness remained.
RATE CHANGES AND DISSENT
The Bank of Japan also set the complementary deposit facility rate at 1.25% and the basic loan rate at 1.5%, both effective on 24 September. The deposit facility rate applies to eligible current-account balances held by financial institutions at the central bank, excluding required reserves. The basic loan rate applies under the complementary lending facility.
Board members Toichiro Asada and Ayano Sato opposed the increase. The official decision recorded Asada’s view that recent core inflation below 2% and the economy’s condition favoured maintaining the existing guideline. It recorded Sato’s view that economic and price developments had not accelerated sufficiently to justify an increase at this meeting.
POLICY OUTLOOK AND NEXT MILESTONES
Governor Kazuo Ueda said after the meeting that future rate decisions would be made at each policy meeting without a preset timetable. Reuters reported that he framed the task as maintaining underlying inflation around 2%, after an earlier phase focused on lifting it towards that level.
The first milestone is 24 September, when the revised operating guideline and central-bank facility rates take effect. The Bank of Japan is due to publish its summary of opinions on 1 October and the meeting minutes on 5 November. Those releases will provide the next official detail on the board’s assessment and the two dissenting votes, while Ueda’s guidance leaves the timing of any further increase open to each meeting.