📈The Bank of Japan Raises Interest Rates to the Highest Level Since 1995📈
📊The Bank of Japan (BOJ) has just raised its benchmark interest rate to around 0.75%, the highest level since 1995 and the highest in three decades.
📈Details of the BOJ's decision📈
📊The BOJ's short-term interest rate was raised from 0.5% to 0.75% through a unanimous decision by the policy board.
📊This 0.75% level was last seen around September 1995, when Japan was still struggling to emerge from the asset bubble crisis and prolonged deflationary pressures.
📈Reasons for the BOJ to raise interest rates📈
📊The BOJ assesses that inflation in Japan is now on a more stable path towards the 2% target supported by wage increases, thus opening up space for **normalization** of policy after decades of ultra-low interest rates.
📊The central bank also stated that real interest rates are still very negative, so financial conditions remain loose even though nominal interest rates are rising.
📈Implications for the market and the yen📈
📊This increase reduces the status of the yen as one of the cheapest funding currencies in the world and may potentially reduce global carry trade practices.
📊The market is now focused on Governor Kazuo Ueda's statements to gauge how quickly and to what extent further interest rate increases will be made.
📈Historical context of Japanese interest rates📈
📊For more than two decades, Japan has implemented very low to negative interest rate policies to combat deflation and support growth.
📊Gradual increases from 2024–2025 mark a significant shift from the era of zero/negative interest rates towards a more **normal** policy compared to other advanced country central banks.
📈Potential impact on Indonesia📈
📊The increase in Japanese interest rates could encourage yen strengthening and attract some capital flows back to Japan, which could potentially affect portfolio investment flows in emerging markets including Indonesia.
📊However, the direct influence on BI interest rates is usually limited and is more determined by domestic inflation, the exchange rate of the rupiah against the US dollar, and overall global economic dynamics.
