Bank of Japan Set to Raise Key Interest Rate

The Bank of Japan (BOJ) is anticipated to increase its key short-term interest rate from approximately 0.25 percent to 0.5 percent during its upcoming two-day policy meeting. Sources familiar with the situation shared this information on Tuesday.

The central bank is expected to announce this hike on Friday, marking a rise to a level not seen since October 2008. Financial markets appear to have remained stable even after the recent inauguration of U.S. President Donald Trump. According to the sources, Trump's inauguration speech, particularly regarding possible tariffs, fell within the expectations of many market participants, allowing the BOJ to consider raising rates for the first time in about 17 years.

After the previous policy meeting in mid-December, where the BOJ opted to maintain the key rate, Governor Kazuo Ueda indicated he would look for additional signals regarding Trump's economic policies and closely monitor wage developments in Japan before making a final decision on another potential rate increase.

A quarterly report from the BOJ released earlier this month indicated that the willingness for wage increases would be sustained during this year's spring salary negotiations. In conjunction with this, the Japan Business Federation outlined its commitment to maintaining upward wage momentum. The federation emphasized the importance of salary hikes for small and medium-sized enterprises, which employ around 70 percent of the Japanese workforce.

In recent days, the BOJ has hinted that a rate hike could be on the horizon. Both Governor Ueda and Deputy Chief Ryozo Himino have mentioned that the bank will discuss the prospect of raising rates during this week's meeting.

Under Ueda's leadership, the BOJ is moving away from a decade-long period of unconventional monetary easing. This includes ending its negative interest rate policy in March of the previous year and subsequently raising the key policy rate to around 0.25 percent in July.

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BOJ, interest, rate