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Bank Of Japan Raises Interest Rates To 17-Year Peak

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On Friday, the Bank of Japan raised its interest rates to a 17-year peak, with officials suggesting further increases may be on the horizon. The decision has sparked concern over potential economic turbulence linked to US President Donald Trump’s policies.

The widely anticipated 25-basis-point hike to 0.5 percent reflects the Bank of Japan’s confidence in the trajectory of the world’s fourth-largest economy. The decision comes amid economic data aligning with policymakers’ expectations and follows yet another strong inflation report.

The Bank of Japan stated that the decision to raise borrowing costs to their highest level since 2008 was supported by strong underlying inflation, steady wage increases by firms, and overall stability in financial markets.

“Japan’s economic activity and prices have been developing generally in line with the Bank’s outlook, and the likelihood of realising the outlook has been rising,” it said.

If its outlook is met, “the bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation”, it added.

The yen strengthened to 155.20 per dollar, compared to 156.30 earlier, as the news and the prospect of further rate hikes buoyed the currency. This follows a period of weakness caused by Trump’s election and market speculation that the Federal Reserve would ease its rate-cutting cycle this year.

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While other central banks have steadily increased borrowing costs in recent years, the Bank of Japan has stood apart, adhering to an ultra-loose monetary policy aimed at stimulating economic growth and driving inflation.

But it concluded last March that Japan’s “lost decades” of economic stagnation and static or falling prices were over, finally lifting rates above zero, where they had been for more than a decade in a bid to kickstart inflation and growth.

 

The March increase — which was the first since 2007 — was followed by another in July that caught investors off guard and sparked turmoil in global equity and currency markets.

This time, BoJ chief Kazuo Ueda prepared markets for an increase — some 75 percent of economists expected one — and the reaction was more muted on Friday.

The Eastern Updates 

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