By Mucahithan Avcioglu
ISTANBUL (AA) - The Bank of Japan (BOJ) decided to raise its benchmark policy rate by 25 basis points on Friday, reaching its highest level in 30 years.
The benchmark interest rate now stands at 0.75%, in line with market expectations.
The BOJ said that real interest rates are expected to remain “significantly negative,” adding that accommodative financial conditions will continue to firmly support economic activity.
Following the decision, the yield on 10-year Japanese government bonds increased by around 5 basis points to 2.019%, while the yield on 20-year JGBs increased by 3 basis points to 2.975%, both of which reached their highest levels since 1999.
The benchmark Nikkei 225 stock index increased 1.28% as the yen fell 0.25% to 155.92 vs the US dollar.
For 44 consecutive months, Japan's inflation has above the BOJ's 2% objective; data earlier in the day indicated that consumer price increase in November was 2.9%. According to labor ministry data, real salaries have been falling for ten consecutive months due to pressure from high inflation.
The BOJ predicted that core inflation, which excludes the cost of fresh food, would likely fall below 2% between April and September 2026 as a result of both a slower increase in food costs and the consequences of government initiatives meant to curb price increases.
Meanwhile, increased rates run the risk of making the Japanese economy's downturn worse. The economy contracted 0.6% quarter over quarter and 2.3% annually, according to revised gross domestic product (GDP) figures for the third quarter.
In its statement, the BOJ stated that although the economy has shown signs of slowdown, corporate earnings are forecast to stay high and businesses are expected to keep rising wages in 2026.
The bank stated that the likelihood of underlying inflation hitting its 2% target was increasing and that "it is highly likely that the mechanism in which both wages and prices rise moderately will be maintained."