BOJ Decides to Hike Interest Rates to 17-Year High

Tokyo, Jan. 24 (Jiji Press)--The Bank of Japan decided to raise its policy rate to the highest level in about 17 years at a two-day policy meeting that ended Friday, encouraged by anticipated wage increases.

The central bank's Policy Board decided to increase its target for the unsecured overnight call rate, Japan's benchmark short-term interbank lending rate, to around 0.5 pct from around 0.25 pct, effective from Monday, because strong wage hikes are expected in this year's "shunto" spring labor-management negotiations, BOJ Governor Kazuo Ueda told a press conference after the meeting.

The likelihood of the BOJ's economic and price outlooks being met is increasing, he said, adding that the central bank will raise its policy rate further if the economy and prices keep moving in line with its expectations.

The governor said that the pace and timing of rate hikes will be discussed at each monetary policy meeting, and that the policy rate is still far from the neutral interest rate, which neither stimulates nor cools the economy. Japan's neutral interest rate is believed to be between 1 pct and 2.5 pct.

It was the BOJ's first rate hike decision since last July and the third since the central bank scrapped its negative interest rate policy last March. The last time the BOJ's policy rate stood at or above 0.5 pct was October 2008.

[Copyright The Jiji Press, Ltd.]