Bank of Japan lifts policy rate to 0.25%, trims bond buying

The USD/JPY currency pair whipsawed on Wednesday, after the Bank of Japan raised its short-term interest rate to around 0.25% from a previous range of around 0% to 0.1%, which it set at its March meeting.

The central bank also said it would reduce the monthly bond purchases to JPY 3 trillion in January-March 2026 from the current pace of JPY 6 trillion in order to normalize monetary policy.

As early as August, the Bank of Japan will offer to purchase JPY 400 billion of 5-year and 10-year Japanese Government Bonds at each of its operations, while removing the ongoing offer range of JPY 400 to JPY 550 billion.

Meanwhile, in its quarterly outlook, the central bank revised down its full-year 2024 core inflation forecast to 2.5% from 2.8% as projected in April.

With regard to 2025, the BoJ expects core inflation to be around 2%, compared to a previous forecast of 1.9%.

The USD/JPY currency pair was last 0.04% firmer on the day to trade at 152.809, with the FOMC meeting outcome now in sight.

The Federal Reserve is widely expected to leave its federal funds rate target range without change at a 23-year high of 5.25%-5.50% for the eighth straight policy meeting in July.

Fed policy makers are likely to hint at a potential rate cut in September amid signs of easing inflationary pressures.