Bank of Japan Raises Interest Rate to 0.75%

TOKYO, Japan - The Bank of Japan raised its benchmark interest rate to 0.75 percent on Friday, the central bank said in a statement following its two-day monetary policy meeting.

The Policy Board voted unanimously to set the uncollateralized overnight call rate at around 0.75 percent, effective December 22, according to the statement.

The central bank also set the interest rate applied to the complementary deposit facility at 0.75 percent and the basic loan rate at 1.0 percent.

The central bank said Japan’s economy has recovered moderately, though some weakness has been observed.

Labor market conditions have remained tight, and corporate profits are expected to remain at high levels overall, even after accounting for the impact of tariff policies, the Bank of Japan stated.

The central bank said it is highly likely that firms will continue to raise wages steadily next year, following solid wage increases this year.

The statement expects the risk of firms’ active wage-setting behavior being interrupted to be low.

Underlying consumer price index inflation has continued to rise moderately, with moves to pass on wage increases to selling prices continuing, the Bank of Japan said.

The year-on-year rate of increase in the consumer price index, excluding fresh food, has been at around 3 percent recently, due to the effects of the rise in food prices, including rice prices, and other factors.

The central bank stated that uncertainties regarding the U.S. economy and the impact of trade policy across jurisdictions have declined, while uncertainties remain.

The Bank of Japan said the likelihood of realizing its baseline scenario has been rising.

That scenario projects underlying consumer price index inflation will be at a level generally consistent with the price stability target of 2 percent in the second half of the projection period of the October 2025 Outlook for Economic Activity and Prices.

The central bank judged it appropriate to adjust the degree of monetary accommodation in light of the sustainable and stable achievement of the 2 percent price stability target, the statement said.

Real interest rates are expected to remain significantly negative after the change in the policy interest rate, and accommodative financial conditions will continue to firmly support economic activity, according to the Bank of Japan.

The central bank said it will continue to raise the policy interest rate and adjust the degree of monetary accommodation in line with improvements in economic activity and prices, given that real interest rates remain significantly low.

The Bank of Japan stated it will conduct monetary policy as appropriate in response to developments in economic activity, prices, and financial conditions.

Two Policy Board members registered dissenting opinions on the price outlook description.

Takata Hajime opposed the description, arguing that the rate of increase in the consumer price index, including underlying inflation, had already generally reached the price stability target.

Tamura Naoki opposed the description of underlying inflation, arguing that it was likely to be at a level generally consistent with the price stability target from the middle of the projection period, according to the statement.

The meeting was held on December 18-19. 

Governor Ueda Kazuo chaired the meeting, and all nine Policy Board members participated.

Deputy Governor Uchida Shinichi participated via conference call from his office at the Bank’s headquarters.