• The Bank of Japan has raised its main interest rate to 0.75%, the highest in 30 years.
• Core inflation remains steady at 3% in November, above the BoJ's 2% target.
• The decision signals a shift in Japan's long-standing low-interest rate policy.

On Friday, the Bank of Japan (BoJ) increased its main interest rate to 0.75%, marking the first hike since January and the highest level seen in 30 years. This decision reflects a broader strategy to combat persistent inflation, as Governor Kazuo Ueda emphasized the importance of achieving a sustained inflation rate around its target of 2%. Markets are closely watching potential future hikes beyond this increase, which could have global financial implications

Recent inflation data showed Japan's core consumer price index unchanged at 3% in November, continuing to exceed the BoJ’s target. The persistent increase in prices, particularly for essential goods like rice, which rose by 37% year-on-year, has pressured the central bank to act. Prime Minister Sanae Takaichi has made tackling inflation a priority, advocating for increased government spending alongside the BoJ’s monetary policy adjustments

The decision to raise rates comes at a time when Japan's economy is showing signs of recovery, although uncertainties remain related to international trade dynamics and tariff impacts from the United States. Despite concerns over fiscal discipline under Takaichi’s administration, analysts suggest that the BoJ is likely to continue raising rates as long-term inflation concerns persist. The potential for subsequent hikes is reflected in the market’s expectations for rates to reach 1% by September next year

Following the announcement, the yen depreciated slightly against the dollar, and yields on Japanese government bonds have increased due to rising concerns about borrowing costs. These developments indicate a significant shift from Japan's long-standing policy framework characterized by near-zero interest rates, as both domestic and external economic conditions evolve