The Bank of Japan has raised its short-term interest rate from 1% to 1.25%, marking the highest level since 1995. The decision, supported by seven out of nine board members, will take effect on September 24. The regulator cited rising price pressures, including increased labor costs and global demand for AI hardware, as primary drivers for the policy shift.
Despite the hike, two board members, Toichiro Asada and Ayano Sato, voted against the measure, citing insufficient economic stability and lack of significant price acceleration. Analysts surveyed by Reuters anticipate further rate increases to 1.5% by the end of March and 1.75% by the second quarter of 2027, as the bank maintains its commitment to tightening monetary policy.
Market reaction was muted as investors had already priced in the move. The yen weakened by 0.8% to 157.15 per USD, while the Nikkei 225 index rose by approximately 0.8%. In the cryptocurrency market, Bitcoin climbed 1.4% to around $77 600, and Ethereum gained 1.8% to trade near $2500.
The interest rate hike is significant for the crypto sector due to the carry trade mechanism, where investors borrow low-interest yen to fund higher-yielding assets. While previous concerns centered on potential sell-offs from closing these positions, the market's pre-emptive adjustment helped mitigate immediate volatility following the announcement.
