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The Bank of Japan surprised many today by raising its short-term interest rate to 0.25%. This is the second increase in recent months, as the BOJ attempts to curb the yen’s decline against the US dollar and move towards more normal monetary policies.&nbsp; 
Our financial markets’ response was immediate and massive. The Tokyo stock market felt it first. Initially, stocks dropped by 0.4%, as investors braced for the BOJ’s announcement. 
<figure id="attachment_562352" aria-describedby="caption-attachment-562352" style="width: 100%" class="wp-caption alignnone">
 <img decoding="async" class="wp-image-562352 size-full" src="https://www.cryptopolitan.com/wp-content/uploads/2024/07/Bank-of-Japan-raises-interest-rates-again-Markets-react.jpg" alt="Bank of Japan raises interest rates again - Markets react" width="1920" height="1280" srcset="https://www.cryptopolitan.com/wp-content/uploads/2024/07/Bank-of-Japan-raises-interest-rates-again-Markets-react.jpg 1920w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Bank-of-Japan-raises-interest-rates-again-Markets-react-300x200.jpg 300w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Bank-of-Japan-raises-interest-rates-again-Markets-react-1200x800.jpg 1200w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Bank-of-Japan-raises-interest-rates-again-Markets-react-768x512.jpg 768w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Bank-of-Japan-raises-interest-rates-again-Markets-react-1536x1024.jpg 1536w" sizes="(max-width: 1920px) 100vw, 1920px">
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 Credits: The Associated Press
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But after the rate hike, the market rebounded. The rate hike was seen as a sign that Japan’s economy might be stronger than previously thought. But what would that mean for the dollar, and the global economy? 
<h3 id="b-currency-markets-react-to-japan-s-decision-b">Currency markets react to Japan’s decision</h3> 
The yen made a strong comeback against the US dollar, appreciating by 1.8%. It hit an intraday high of 150.05 yen per dollar, a level not seen since March.&nbsp; 
The BOJ’s decision and hints at future hikes made the yen more attractive to investors. The global currency markets also felt the ripple effects.&nbsp; 
The dollar index, which measures the dollar against other major currencies, dipped by 0.3%. The dollar has gotten pretty weak, partly because of expectations that the Federal Reserve might soon cut rates. 
<figure id="attachment_562353" aria-describedby="caption-attachment-562353" style="width: 100%" class="wp-caption alignnone">
 <img decoding="async" class="wp-image-562353 size-full" src="https://www.cryptopolitan.com/wp-content/uploads/2024/07/Ueda.jpeg" alt="Bank of Japan raises interest rates again - Markets react" width="2000" height="1335" srcset="https://www.cryptopolitan.com/wp-content/uploads/2024/07/Ueda.jpeg 2000w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Ueda-300x200.jpeg 300w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Ueda-1200x801.jpeg 1200w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Ueda-768x513.jpeg 768w, https://www.cryptopolitan.com/wp-content/uploads/2024/07/Ueda-1536x1025.jpeg 1536w" sizes="(max-width: 2000px) 100vw, 2000px">
 <figcaption id="caption-attachment-562353" class="wp-caption-text">
 Kazuo Ueda. Credits: Akio Kon/Bloomberg
 </figcaption>
</figure> 
Investors are now looking at Japan with renewed interest. The BOJ seems to have moved on from its long-standing ultra-loose monetary policy.<a href="https://english.kyodonews.net/news/2024/07/6822440d53e2-update1-bank-of-japan-raises-policy-rate-to-around-025-from-0-01-range.html" rel="nofollow noopener" target="_blank">&nbsp;</a> 
For years, the BOJ kept rates at zero or below to spur economic activity. But when inflation became a pressing concern, the BOJ decided to try a different approach. In a press conference, Chief Kazuo Ueda said: 
<blockquote>
 “The headline inflation rate has been consistently above 2 percent for an extended period. In view of further upside risks to inflation, we thought now was the right time.”
</blockquote> 
Ueda also said that while the BOJ is committed to normalizing its policies, they would proceed cautiously. He acknowledged the challenges from yen’s recent depreciation but added that: 
<blockquote>
 “I don’t think the rate increase will have a serious negative effect on the economy because it’s still at low levels.”
</blockquote> 
More rate hikes could be in the pipeline for Japan, depending on economic data. The central bank announced plans to halve its bond-buying program from the current 6 trillion yen a month by March 2026.

Bank of Japan raises interest rates again – Markets react

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