The Bank of Japan voted 7-2 on Sept. 18 to raise its policy rate, setting the target for the uncollateralized overnight call rate at around 1.25%. The change will take effect on Sept. 24. After the decision was released, Bitcoin traded above $77,000 around midday Taipei time.
Three rates were adjusted at the same time
According to the BOJ statement, the Policy Board approved the move by a 7-2 majority and decided to guide the uncollateralized overnight call rate at around 1.25%. By the same vote, it also raised two related rates: the interest rate applied under the complementary deposit facility to 1.25%, and the basic loan rate to 1.5%. All three changes will take effect on Sept. 24.
A separate decision on climate response financing operations was approved unanimously. That measure changes the lending rate to a floating rate and sets an upper limit on lending.
Several international media outlets described the 1.25% level as the highest in 31 years. The BOJ statement itself did not use that wording and only listed the rate figures.
Two board members dissented for different reasons
The statement included the voting record. Those voting in favor were Governor Kazuo Ueda, Deputy Governors Ryozo Himino and Shinichi Uchida, and board members Hajime Takata, Naoki Tamura, Junko Koeda, and Kazuyuki Masu.
The two dissenting votes came from board members Toichiro Asada and Ayano Sato.
Asada said that, given recent gains in the consumer price index excluding fresh food were below 2%, it was not necessarily appropriate to say economic conditions were strong, making it more suitable to keep the existing operating guideline.
Sato said current economic and price developments did not show a clear acceleration from earlier conditions, and that raising the policy rate at this point was not appropriate.
AI demand appeared twice in the policy statement
The BOJ referred directly to AI in two parts of its description of economic conditions.
In its outlook, the central bank said Japan’s economy is expected to continue growing moderately because, even though the Middle East situation is expected to weigh on economic activity, the economy may still be supported by government measures and an increase in global AI-related demand.
On prices, the statement said the year-on-year rate of increase in the producer price index remained high, reflecting the impact of expanding AI-related demand, as well as high crude oil prices and yen depreciation.
That put AI demand in two roles in the same decision document: as a factor supporting economic activity and as one of the drivers pushing prices higher, alongside the Middle East situation, crude oil prices, and the exchange rate.
BOJ said underlying inflation is nearing 2%
The statement said price hikes in business-to-business transactions had started to spill over into consumer prices, while wage increases continued to be passed on to selling prices. It also said medium- to long-term inflation expectations were still rising and that underlying consumer price inflation had been moving close to 2%.
The BOJ also spelled out the direction of the risk. It said underlying inflation carries a risk of overshooting the 2% price stability target, citing firmer corporate behavior on wages and prices and rising medium- to long-term inflation expectations. On that basis, the bank said adjusting the degree of monetary easing was appropriate.
Forward guidance said rates will continue to rise
The forward guidance left little room for ambiguity. The BOJ said it will continue to raise the policy rate and adjust the degree of monetary easing, while considering the timing and pace of those adjustments in line with economic activity, prices, and financial conditions.
At the same time, the statement said accommodative financial conditions are expected to remain in place after the policy rate adjustment and will continue to firmly support economic activity. In that framing, the latest move reduces the degree of easing rather than marking a shift to tightening.