On January 24, the Bank of Japan raised interest rates by 25 basis points to 0.5%, the highest level since the 2008 global financial crisis. This hike, marking Japan’s highest borrowing costs in 16 years, is expected to have broader global implications. Following the announcement, global markets retreated, with Japan’s Nikkei giving up early gains and trading up by just 100 points. US futures also slipped into the red, with Dow Jones futures flat. The Japanese Yen appreciated slightly, reaching around 155 against the US dollar.
The rate hike, which was largely in line with market expectations, came after Japan’s core inflation surged to a 16-month high of 3%, prompting the central bank to take action. The BOJ also projected inflation could hit 2% by the second half of 2025. For years, Japan has been a haven for cheap capital due to ultra-low interest rates, and the recent move signals a shift that could impact global financial markets, especially as foreign investors adjust to the changing economic landscape.
