9:0 unanimous approval! The Bank of Japan raised interest rates by 25 basis points as scheduled: further rate hikes will continue if economic and price outlooks are realized

The Bank of Japan announced on Friday a 25 basis point interest rate hike, raising the uncollateralized overnight call rate to 0.75%, the highest level since 1995.

The decision was announced after a two-day policy meeting and was passed unanimously with a 9-0 vote, fully in line with market expectations. All 50 economists surveyed predicted that the Bank of Japan would take action to raise interest rates this time, marking the first instance of a unanimous expectation for a "full bet on rate hikes" during Governor Kazuo Ueda's tenure.

After the announcement, the yen briefly surged against the dollar but then retreated, falling below the 156 mark during the session, down 0.3% for the day. Market reactions indicate that this rate hike has been fully absorbed by investors, confirming the central bank's judgment—that the current rate adjustment is still insufficient to change the accommodative tone and is more like a part of "gradual normalization."

This rate hike was not unexpected. Previously, Kazuo Ueda had rarely released clear policy signals in public statements, suggesting that the conditions for a rate hike were maturing, paving the way for the market to price in advance. Against the backdrop of gradually clarifying inflation trends and more transparent policy communication, the Bank of Japan chose to proceed with policy normalization step by step.

Kazuo Ueda will hold a press conference at around 3:30 PM local time (2:30 PM Beijing time) to further elaborate on the considerations behind this decision and the future interest rate path. The market generally expects that the Bank of Japan will continue to adopt a gradual, predictable, and data-dependent approach to rate hikes, rather than aggressively tightening.

Reiterating Continued Rate Hikes if Outlook is Achieved

In the policy statement, the Bank of Japan emphasized that if the economic and price outlook is realized as currently judged, it is expected to continue raising interest rates.

The central bank stated that it will gradually adjust its policy stance based on improvements in economic activity and prices while maintaining an accommodative monetary environment to support economic recovery. The statement also noted that the likelihood of achieving the "Economic and Price Outlook" is increasing.

Regarding inflation, the Bank of Japan believes that the core inflation rate is still rising moderately, and the price trends are generally consistent with the targets for the second half of the year. Although nominal interest rates have been raised, the central bank expects that real interest rates will remain significantly negative, which means that the overall financial environment remains accommodative and will not pose a significant constraint on the economy.

Political Uncertainty Eases, Rate Hike Space Retained

It is worth noting that since October, the domestic political environment in Japan had briefly cast a shadow over the outlook for monetary policy.

After Sanae Takaichi, seen as a proponent of monetary easing, took office as Prime Minister, there were concerns in the market that the government might hinder the central bank's policy normalization.

However, analysts pointed out that persistent inflationary pressures and the political costs brought about by a weak yen have prevented the government from obstructing the Bank of Japan's rate hike action, instead allowing Kazuo Ueda to continue advancing policy normalization.

Economic and Wage Data Provide Support

From the perspective of economic fundamentals, the Bank of Japan's rate hike was also supported by data.

Recent economic indicators show that the tariff policies promoted by U.S. President Trump have not yet had a substantial impact on the Japanese economy. Meanwhile, the major labor unions in Japan have set wage increase targets for the upcoming annual spring labor negotiations that are similar to last year's levels—when wage negotiations led to the largest wage growth in decades It indicates that wage momentum still exists.

This is also the first time since January of this year that Ueda Kazuo has raised interest rates again, highlighting his determination to continue normalizing interest rates against the backdrop of the gradually forming positive cycle of "inflation-wages-policy."