Bank of Japan raises rates to 1.25%

In brief

25%, the highest since 1995, in an expected decision.

It is the second hike of the year and comes two days after the Fed raised rates.

Synchronised tightening reduces the Brazilian rate differential.

Verified fact · material
The Bank of Japan raised its benchmark interest rate by 0.25 percentage point to 1.25% on September 18, the highest level in 31 years.
Confirms Japanese monetary normalisation at a quarterly pace.
Sources[01][02]
Verified fact · material
The hike was widely expected: economist surveys cited by Money Times and InfoMoney forecast the increase to 1.25% at the September meeting, after the hike to 1% in June.
Reduces the risk of surprise in currency markets.
Sources[03][04]
Context
The decision comes two days after the Fed raised rates to 3.75%-4.00% and two days after the Copom cut the Selic to 13.75%, narrowing the Brazilian rate differential.
Context of synchronised tightening among advanced economies.
Sources[02]
Context
The central bank had been signalling the hike while the Japanese government raised its alert over yen weakness and the possibility of new currency intervention.
Defending the yen is part of the motivation.
Sources[03][04]

Transmission to assets

The gradual unwinding of the yen carry tends to reduce flows into high yield emerging currencies.

For the real, the effect is marginal while the Selic stays above 13%, but it adds to the Fed and Bolsa Família as pressure factors this week.

Real (BRL)negative

A more expensive yen carry reduces demand for high yield currencies.

Marginal pressure.

What would change the view: Small effect while the Selic stays above 13%.

currency35% confidence

Direction is an explanatory hypothesis, not a forecast or recommendation.

Next signals

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