Short-term interest rates, such as mortgage rates and lending rates to companies, have a major impact on our lives. The Bank of Japan has just decided to raise interest rates to 0.25%.

Just before 1 p.m., the yen was trading at around 152 yen to the dollar, but then rapidly strengthened by about 1 yen.

However, immediately after that, the yen weakened by about 2 yen. The trigger for the turbulent market was the “Bank of Japan interest rate hike.”

Bank of Japan Governor Kazuo Ueda
“We have changed the target range for the unsecured call rate (short-term interest rate) from the current range of 0-0.1% to around 0.25%.”

Starting tomorrow, we will raise the target range for short-term interest rates from 0% to 0.1% to 0.25%.

Bank of Japan Governor Kazuo Ueda
“Compared to the past, exchange rate fluctuations are more likely to affect prices.”

Regarding the reasons for the rate hike, Governor Ueda cited: 1) the widespread wage increases and the economy and prices progressing as expected, and 2) higher-than-expected prices due to the weak yen.

The market had originally expected that interest rates would likely rise after the next meeting in September. However, just before the meeting, a series of unusual statements from senior administration officials could be interpreted as positive for an interest rate hike.

Meanwhile, within the Bank of Japan, there were voices saying that raising interest rates, which could have a chilling effect on the economy, would be “difficult to do in September when the LDP presidential election is held,” which may have been behind the latest rate hike.

Governor Ueda’s press conference is still ongoing. The focus is on what he will say about the rise in prices caused by the weak yen and how to respond to it.