• The Bank of Japan has raised interest rates to 0.75%, marking the highest level since 1995.
• This hike is the first increase since January and signals a shift in Japan's long-standing monetary policy.
• Core inflation remains steady at 3%, well above the BOJ's target rate of 2%.
• The decision is influenced by rising wage expectations and economic resilience against global trade pressures.
• Governor Kazuo Ueda hinted at future rate increases, depending on economic conditions.

The Bank of Japan (BOJ) has officially raised its main interest rate to 0.75%, reaching a 30-year high, reflecting a significant shift in its monetary policy strategy that contrasts sharply with decades of low-rate policies. This decision was reached by unanimous vote during the BOJ's recent meeting, marking the first increase since January 2025. Analysts expect that the BOJ may continue to hike rates in the future as Japan aims to stabilize its inflation around 2%, which it has challenged in recent years, according to Reuters, India Times, BBC, India Times, and South China Morning Post.

This decision aligns with Governor Kazuo Ueda's assessment that Japan's economy is showing signs of improvement, as indicated in their policy statement. Official data revealed that the core consumer price index held steady at 3% in November, significantly exceeding the BOJ's target, leading policymakers to recognize the urgency to adjust rates to mitigate ongoing inflation pressures. Rising global commodity prices and a weakened yen have further complicated this situation, complicating the bank's approach to borrowing costs, according to South China Morning Post, India Times, BBC, and Reuters.

In a bid to respond effectively, the BOJ has also indicated readiness for subsequent rate hikes in 2025, with economists forecasting potential increases up to 1% by next year. Ueda emphasized that future adjustments will depend on economic performance and inflation forecasts. The current inflation trends have resulted in some fluctuations in government bond yields, heightening concerns about fiscal borrowing costs amidst the need for ongoing economic stimulus from Prime Minister Sanae Takaichi’s government, reported India Times, South China Morning Post, Reuters, and BBC.

Despite the challenges posed by potential economic impacts from U.S. tariffs and overall inflationary pressures, the BOJ remains committed to its goal of achieving a sustainable inflation target. The bank's latest assessment suggests confidence in continued wage growth and consumer price stabilization, potentially paving the way for future rate increases following thorough monitoring of economic responses to the current adjustments. This perspective aligns with findings that business confidence is at a four-year high, pushing the outlook for wage growth positively, as indicated by Reuters, India Times, and South China Morning Post.