Bank of Japan raises rates to highest since 1995 - Financial Times

The Bank of Japan has raised its policy interest rate to its highest level since 1995, according to the Financial Times. The move extends the central bank’s gradual exit from the ultra-loose monetary stance it maintained for years, a period defined by negative rates and large-scale asset purchases aimed at fighting deflation.

For global markets, the significance lies in the cost of yen funding. Japan has long been a source of inexpensive capital for carry trades, in which investors borrow in yen and buy higher-yielding assets elsewhere. Higher Japanese rates can narrow that differential, potentially influencing currency and bond markets well beyond Japan.

What to watch now is the pace of further tightening and the yen’s response. The Bank of Japan has historically moved cautiously, citing fragile growth and the need for durable inflation. Investors will also monitor whether higher domestic yields pull Japanese capital home, affecting demand for overseas debt. The decision marks another step in Japan’s normalization, but its broader market effects will depend on how gradually the central bank proceeds.