BOJ Unexpectedly Raises Policy Rate and Announces Bond Tapering Plan

Akira Ito
31 Jul, 2024
Tokyo

Benchmark indexes in Tokyo jumped after the Bank of Japan increased rates for the second time this year. 

The Nikkei 225 and the Topix indexes advanced 1.5% after the Bank of Japan raised its key short-term uncollateralized rate to 0.2% from a range between zero and 0.1%. 

The central bank lifted its key rate for the second time this year following its previous rate hike in March and the ending of its negative interest rate regime in place since 2016. 

"Japan's economic activity and prices have been generally developing in line with the outlook," the Bank of Japan said in a policy statement released after the two-day meeting that ended on Wednesday. 

The interest rate move surprised most market participants, as the central bank did not want to encourage excessive currency speculation. 

The central bank also announced its plans to taper the monthly government bond purchase program to 3 trillion yen in the first quarter of 2026 from the current monthly purchase of 6 trillion yen. 

The Bank of Japan also indicated in a separate statement that policymakers are anticipating core consumer inflation to average 1.9% in the fiscal year 2025 and 2.1% in the fiscal year 2026. 

The BoJ policy statement also laid out a case for additional rate hikes in the months ahead, as the central bank plans a gradual increase in rates to reduce the yield gap between the U.S. and Japan. 

"Given that real interest rates are at significantly low levels, if the aforementioned outlook for economic activity and prices is realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary accommodation," the central bank said in an accompanying statement. 

The Japanese yen strengthened 1.5% to 150.18 and rebounded to the level last seen on March 18. 

 

Japan Stock Movers 

The Nikkei 225 stock average jumped 1.5% to 39,101.82, and the Topix index advanced 1.5% to 2,794.26. 

Mitsubishi UFJ Financial Group soared 4.2% to ¥1,750.0, Mizuho Financial gained 5.2% to ¥3,448.0, and Sumitomo Mitsui Financial added 4.5% to ¥10,915.0. 

The Bank of Japan's rate path clarity supported the rise in leading exporters, despite the strengthening of the yen.

Canon, Sony, TDK, and Panasonic rebounded between 1.5% and 3.5%. 

Oriental Land declined 5.9% to ¥4,282.0, and the company reported weaker-than-expected quarterly results. 

Net sales increased 5.6% to 148.21 billion yen, driven by a 4.2% increase in theme park sales to 121.40 billion yen.

Net income advanced 11% from a year ago to 24.45 billion yen.

The company estimated net sales in the current fiscal year to increase to 684.76 billion yen and net income to rise to 120.52 billion yen.