Japan raises interest rate to highest since 1995

The Bank of Japan raised its benchmark interest rate to between 0.0% and 0.1% on March 19, 2024, marking the first increase since 2007 and moving away from its negative interest rate policy that began in 2016. This decision signals a significant shift in Japan's monetary policy, which has largely remained accommodative for decades to combat deflation. Governor Kazuo Ueda stated that the central bank will continue to purchase Japanese government bonds at roughly the same pace for the time being, indicating a gradual approach to further tightening. The move comes as inflation in Japan has shown signs of sustained growth, exceeding the Bank of Japan's 2% target for over a year, driven by rising import costs and a tight labor market. The bank also announced an end to its purchases of exchange-traded funds (ETFs) and Japanese real estate investment trusts (REITs), which were part of its unconventional easing measures. While the rate hike is modest, it represents a pivotal moment for the Japanese economy, which has struggled with low growth and deflationary pressures for nearly three decades. The Bank of Japan's move is closely watched by global markets for its potential impact on currency exchange rates and international investment flows.