Yen Weakens Despite BOJ Hiking Rate to Highest Level Since 1995

Core Viewpoint - The Bank of Japan (BOJ) raised its benchmark interest rate to 0.75%, the highest in 30 years, indicating a commitment to further rate hikes amid rising inflation and economic stability, despite market disappointment over the lack of stronger messaging from the central bank [4][5][12]. Group 1: Interest Rate Changes - The BOJ increased the rate by a quarter percentage point to 0.75% in a unanimous decision, citing solid wage growth and reduced risks from US tariffs [4]. - The central bank's rate is now approaching the lower bound of its neutral rate estimate, which is between 1% and 2.5% [2][3]. - The market anticipates a continued hiking cycle, with expectations of rate adjustments approximately every six months [8][11]. Group 2: Economic Indicators - Underlying inflation is rising moderately, with a key consumer price gauge increasing by 3% in November, maintaining a streak of 44 months at or above the BOJ's 2% inflation target [7]. - Japanese government bond yields rose, with the benchmark 10-year bond yield climbing above 2%, the highest level since 1999 [6]. Group 3: Market Reactions - Following the BOJ's announcement, the yen weakened past 157.10 against the dollar, reflecting market disappointment over the perceived lack of hawkish signals [1][5]. - The actions of the BOJ underscore its unique position among global central banks, as it is the only major bank raising rates this year, contrasting with the Federal Reserve's recent rate cuts [12]. Group 4: Political Context - The political landscape, particularly the emergence of monetary easing advocate Sanae Takaichi as prime minister, raised concerns about the BOJ's ability to continue normalizing policy [8][16]. - Public discontent over rising living costs has influenced the political environment, leading to scrutiny of the BOJ's decisions and communications with the government [17][18].