News

Global equity markets were in focus on Friday after the Bank of Japan (BOJ) raised interest rates to their highest level in nearly three decades, taking another decisive step toward policy normalisation.

As widely expected, the BOJ increased its key short-term policy rate by 25 basis points to 0.75 per cent from 0.5 per cent, the highest level since 1995. The decision was taken unanimously.

The rate hike marks the fourth increase under BOJ Governor Kazuo Ueda, who took charge in 2023. It is part of the broader shift away from years of ultra-loose monetary policy, including negative interest rates that were in place from 2016 until last year.

The central bank said the move was justified as it was “highly likely that the mechanism in which both wages and prices rise moderately will be maintained.”

Inflation has remained a key driver behind the BOJ’s tightening stance. Consumer inflation stood at 2.9 per cent in November, while core inflation remained at 3 per cent, staying above the BOJ’s target for more than three years. Higher rates are expected to help contain inflation and address concerns around currency weakness.

However, the decision comes at a time when Japan’s economic growth remains fragile. Revised data showed that the Japanese economy contracted 0.6 per cent quarter-on-quarter and 2.3 per cent on an annualised basis in the third quarter. This has raised concerns that higher borrowing costs could further slow growth.

Equity markets in the Asia-Pacific region traded higher as investors assessed the BOJ’s move. Japan’s Nikkei 225 rose 1.30 per cent, while the broader Topix index gained 0.87 per cent. Despite the rate hike, the yen weakened 0.33 per cent to around 156 per dollar, reflecting ongoing currency pressures.

Other Asian markets also saw gains. South Korea’s Kospi rose 0.72 per cent, while the Kosdaq jumped 1.40 per cent. Global sentiment was supported by positive cues from the US markets overnight, where easing inflation data and strong corporate guidance lifted major indices.

Indian equities also opened higher. The BSE Sensex was trading above 84,800, up over 350 points in early trade, while the Nifty 50 hovered near 25,912, gaining nearly 0.4 per cent.

Market participants are closely tracking global central bank actions, including the BOJ’s policy shift, for cues on capital flows, currency movements, and risk appetite.