Bank of Japan raises rates to highest in 30 years as inflation stays above target

Core Viewpoint - The Bank of Japan has raised its policy rate to 0.75%, the highest level since 1995, as part of its ongoing policy normalization due to persistent inflation above target levels for nearly four years [2][5]. Group 1: Policy Changes - The Bank of Japan increased benchmark rates by 25 basis points to 0.75%, aligning with economists' expectations [2]. - Japan has been normalizing its monetary policy since last year, moving away from a negative interest rate regime that lasted since 2016 [3]. Group 2: Economic Indicators - Inflation has exceeded the BOJ's 2% target for 44 consecutive months, with consumer price growth recorded at 2.9% in November [5]. - Real wages have been declining for 10 months, indicating pressure from high inflation [5]. Group 3: Future Outlook - The BOJ anticipates that firms will likely continue to raise wages steadily next year, following solid wage increases in 2025 [4]. - The bank noted that underlying inflation is rising moderately, with firms passing on wage increases to selling prices [4]. Group 4: Economic Risks - The recent rate hike poses risks to the Japanese economy, which has shown signs of contraction, with GDP shrinking by 0.6% quarter on quarter and 2.3% on an annualized basis [6]. - Rising government bond yields are increasing borrowing costs for Japan, contributing to fiscal strain [6].