Overview
- The Bank of Japan raised its short-term policy rate to 1.0% in a 7-1 vote on June 16, the highest level since 1995.
- A Reuters poll shows most economists expect another hike to 1.25% by year-end and some foresee rates reaching 1.50% by mid-2027.
- BOJ officials pointed to rising energy costs as a key driver, and Deputy Governor Shinichi Uchida warned inflation could overshoot the 2% target.
- Markets had largely priced the June move, but a stronger yen from higher Japanese rates can force the unwinding of yen-funded carry trades and put downward pressure on equities and crypto by triggering broad selling to cover positions.
- Investors and households should watch the BOJ’s July 30-31 policy meeting for guidance on the pace of further tightening and on how the central bank plans to reduce other stimulus without disrupting bond markets.