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Japan increases interest rates for the 2nd time since 2007

Posted on August 1, 2024 |

Japan’s central bank raised interest rates to 0.25% on July 31, the second increase in nearly 20 years.

This follows a similar rate hike in March 2024, marking Japan’s first interest rate change since 2007.

The rate increase aims to strengthen the yen and reduce the impact of high costs for imported goods like food and energy.

The yen had weakened against the dollar due to the difference between Japanese and US interest rates but recently gained some strength in anticipation of this hike.

Analysts expected more rate increases in 2024 due to inflation being above the Bank of Japan's 2% target for over two years.

Japan’s historically low interest rates have weakened the yen, as investors sought higher returns elsewhere.

The Bank of Japan also plans to cut its monthly government bond purchases from 6 trillion yen ($39 billion) by early 2026.

After the rate hike, the yen strengthened to about 153 per dollar, improving from earlier lows but still facing challenges from high import prices.

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