Bank of Japan raises rates to 1% and signals scope for further hikes

The Bank of Japan has raised its policy rate to 1%, the highest level since 1995, and kept the door open to further increases as inflation risks remain in focus. Governor Kazuo Ueda said the central bank will continue raising rates based on economic, price and financial conditions, even as Japan’s economy may slow and recover only gradually under the weight of Middle East-driven oil shocks. Reinforcing the hawkish tone, BOJ board member Naoki Tamura said the bank should keep raising rates steadily and consider accelerating the pace of tightening if inflation risks intensify, adding that underlying inflation had already reached the BOJ’s 2% target. Faster tightening could strengthen the yen, pressure Japanese exporters and affect global capital flows by tightening financial conditions and reshaping yen-funded carry trades.