Japan’s interest rate reaches 0.5%, highest in 17 years

Japan’s interest rate reaches 0.5%, highest in 17 years. January. 25, 2025 07:33. by ??=??????, ????? sanghun@donga.com.
The Bank of Japan raised its short-term policy rate (benchmark interest rate) on Friday from 0.25% to 0.5%. This marks the first rate hike in six months since the previous increase in July last year (from 0–0.1% to 0.25%).

With the decision to raise interest rates during its monetary policy meeting, the Japan central bank has pushed Japan's benchmark interest rate to its highest level in 17 years. This is also the highest rate since October 2008, when the global financial crisis began with the collapse of Lehman Brothers.

The decision is interpreted as being driven by the dual purposes of stabilizing prices and avoiding pressure from the U.S. ahead of the upcoming U.S.-Japan summit in early February. If a rate hike dampens the yen’s depreciation, it could weaken Japan’s export competitiveness to the U.S., signaling Japan's willingness to reduce its trade surplus with the U.S.

Japan’s ultra-low interest rates have devalued the yen, increasing the yen's exchange rate against the dollar. This has bolstered Japan's export price competitiveness, becoming a significant contributor to its trade surplus with the U.S. However, given that U.S. President Donald Trump has emphasized trade balance and adopted strong protectionist policies, including high tariffs, there is speculation that if Japan continues its current trade surplus with the U.S., the U.S. may exert trade pressure and pursue a "Second Plaza Accord" (artificial yen appreciation).