The Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest level since 1995, in a 7-2 vote with Toichiro Asada and Ayano Sato dissenting. The move, part of a normalization that began in March 2024, came three months after the BOJ's previous hike, accelerating the pace compared with earlier six-month intervals. The BOJ said it acted because of a risk that inflation will deviate upward beyond its 2% target and said it aims to stabilize underlying inflation at around 2% so price rises do not overshoot. Japan's headline inflation for August was 1.9% and core inflation was 1.7%, down from 1.8% in July, a point Asada cited in arguing for a hold. The decision followed a coordinated yen intervention by Tokyo and Washington and came after Treasury Secretary Scott Bessent urged BOJ Governor Kazuo Ueda to take "decisive market and monetary steps" at a recent G20 meeting. After the decision the yen traded at 156.64, weakening 0.45%, and the 10-year Japanese government bond yield fell 4.9 basis points to 2.947%.
