The Bank of Japan decided to increase interest rates at its monetary policy meeting on July 31 (Japan time). This is the first interest rate increase since the March meeting to end the negative interest rate policy.
Accordingly, the overnight lending interest rate of the Bank of Japan (BOJ) increased to 0.25% from about 0 - 0.1% previously. This decision was made at the same time as the plan to reduce purchases of long-term government bonds until the end of fiscal year 2025.
In addition, the BOJ will also reduce monthly purchases of Japanese government bonds to about 3 trillion yen per month in the first quarter of 2026. Thus, this amount will be cut by about 400 billion yen each quarter.
According to Governor Kazuo Ueda, the current interest rate is extremely low. "The interest rate increase will not have a major negative impact on the economy. Regarding the target of interest rate policy, we will think about it during implementation, considering the impact of the second interest rate increase. hey" - he said.
Hideo Kumano - chief economist at Dai-ichi Life Economic Research Institute - said that this decision has confirmed that the BOJ is taking core inflation seriously. According to him, the BOJ has been cautious about raising interest rates due to concerns about the economy, changing its stance from "behind the curve" to "ahead of the curve" stance.
In response, in the Tokyo market today (August 1), the USD weakened and the Yen strengthened, reaching its highest level in 4 months. The USD/Yen exchange rate is approaching 150, improving more than 4% in value since the beginning of the year.
On the stock market, export-related stocks decreased due to the appreciation of the Yen, including Toyota Motor Corporation. In addition, large stocks such as real estate were also sold off due to the BOJ increasing interest rates. The Nikkei index at one point dropped as much as 1,300 points and closed at 38,099.50 points. Mr. Yutaka Miura - senior technical analyst of Mizuho Securities Company - commented: "The rising trend of the Yen is a negative factor for Japanese stocks."
According to Reuters news agency, in the foreign exchange market, the Yen appreciated in response to the BOJ raising interest rates the previous day and the comments of Bank of Japan Governor Kazuo Ueda at the press conference afterward. The US Open Market Committee (FOMC) press conference follows a drop in US interest rates with US Federal Reserve Chairman Jerome Powell saying there is a possibility of discussing a rate cut in early September, also boosted the Yen.
