BOJ Set to Hike Benchmark Rate to 31-Year High of 1.0% on Tuesday
**TOKYO** — The Bank of Japan (BOJ) is widely expected to lift its benchmark short-term interest rate from 0.75% to 1.0% on Tuesday. This 25-basis-point increase will push Japanese borrowing costs to levels not seen since 1995, marking a definitive end to the country’s decades-long era of hyper-easy monetary policy.
A cautious tightening cycle has rapidly accelerated due to a punishing combination of persistent yen weakness and global energy shocks. Following geopolitical disruptions in the Middle East, Japan's wholesale inflation spiked to 6.3% in May as companies passed rising crude oil and chemical costs onto consumers. Furthermore, the yen has stubbornly plunged back past the critical 160-per-dollar threshold. Leaving rates untouched would widen the gap with Western central banks, worsening import costs.
Market expectations are heavily locked in. A recent Reuters poll showed that 94% of economists forecast the rate hitting 1.0% on Tuesday, with attention already shifting to a potential follow-up hike to 1.25% later this year.
Beyond the rate decision, investors are monitoring two wildcards: the leadership dynamic at Tuesday's press conference following Governor Kazuo Ueda’s recent hospitalization on June 10, and whether the bank will taper its massive bond-purchasing program. With 10-year bond yields at a near 30-year high of 2.8%, the BOJ must tread carefully to normalize borrowing costs without triggering market instability.
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