For only the second time in nearly two decades, Japan’s central bank on Wednesday raised interest rates, a move aimed at strengthening the country’s weakening currency and alleviating the financial burden on consumers facing higher prices for imported goods such as food and energy.
The Bank of Japan increased its target policy rate to 0.25 percent, marking a significant rise from the previous range of zero to 0.1 percent. This adjustment comes after the last rate hike in March, which was the first increase since 2007.
The yen has faced depreciation against the U.S. dollar over the past couple of years due to the notable interest rate gap between Japan and the United States. However, recent market anticipation of an impending rate hike by the Bank of Japan has led to a slight resurgence in the yen’s value.
The decision by the Bank of Japan was closely monitored by both domestic and international investors and economists. The weakening yen has impacted the purchasing power of Japanese consumers, contributing to economic contractions in two of the last three quarters for Japan, which boasts the world’s fourth-largest economy.
Having maintained inflation levels above the policymakers’ 2 percent target for an extended period, it was widely anticipated that the Bank of Japan would announce additional rate hikes this year. However, the increase to 0.25 percent, disclosed on Wednesday, was a particularly significant departure from the bank’s usual monetary policy.
Pressure had been mounting on the Bank of Japan to raise rates in order to halt the yen’s decline against the U.S. dollar, as the yen had recently reached historically low levels against the dollar.
