Bank of Japan raises rate to 1.25%, highest in 31 years
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Japan's central bank raised its main interest rate from 1% to 1.25% on Friday, reaching a 31-year high not seen since 1995, as it continues to move away from decades of ultra-low borrowing costs. The Bank of Japan (BOJ) has hiked rates six times since 2024, when the rate stood at minus 0.1%. The move comes amid global central bank tightening, with the US Federal Reserve and European Central Bank also raising rates recently, driven by higher energy prices from the Iran war disrupting shipments through the Strait of Hormuz. Japan faces economic challenges including a weak yen, rising prices, and a shrinking workforce. Core inflation eased slightly to 1.7% in August from 1.8% but remains near the BOJ's 2% target. Market analyst Lale Akoner from eToro commented that 'one of the world's last sources of ultra-cheap money is disappearing.' In August, Tokyo and Washington jointly intervened to halt the yen's slide after it hit a 40-year low, the first such coordinated action since 2011. US Treasury Secretary Scott Bessent has pressured BOJ Governor Kazuo Ueda to raise rates to support the yen. Akoner warned that if the yen remains weak despite higher rates, resulting inflation pressure could force the BOJ to tighten faster than markets or Japan's government would like.
Source report
By Peter Hoskins, Business reporter Updated 3 hours ago
Japan's central bank has raised its main interest rate to a fresh 31-year high as it continues to move away from decades of ultra-low borrowing costs and faces increasing economic pressures.
In a widely expected move on Friday, the Bank of Japan (BOJ) increased the rate from 1% to 1.25% — a level not seen since 1995.
The decision comes as major central banks around the world are hiking rates, with higher energy prices caused by the Iran war helping to push up inflation.
- On Wednesday, the US Federal Reserve raised its benchmark interest rate for the first time in over three years.
- The European Central Bank also increased its borrowing costs earlier this month.
The BOJ has been raising the rate since 2024, when it stood at minus 0.1%. It has now hiked rates six times in the last two and a half years. Since then, the bank has steadily increased the rate as it tries to reach a level similar to other major economies.
When a central bank raises rates — known as tightening monetary policy — the country's currency usually becomes stronger, as it makes the currency more attractive to traders.
"One of the world's last sources of ultra-cheap money is disappearing," said market analyst Lale Akoner from investment company eToro.
Economic Challenges
Japan is facing several economic challenges, including:
- A persistently weak yen
- Rising prices
- A shrinking workforce
Official figures published on Friday ahead of the BOJ announcement showed that inflation eased slightly last month. Core inflation fell to 1.7% in August from 1.8% the previous month but remains close to the bank's 2% target level.
While Japan's inflation rate is not high by international standards, rising prices are a relatively new development in the economy. Until recently, the country had experienced very low inflation or deflation — falling prices — for around three decades.
Impact of Global Energy Prices
Global oil and gas prices have risen this year as the Iran war caused major disruptions to shipments through the key Strait of Hormuz shipping route. Japan is particularly vulnerable to those supply interruptions, as it is heavily reliant on energy from the Middle East.
Yen Under Pressure
The country's currency has also been under pressure in recent months. In August, Tokyo and Washington confirmed that they had jointly intervened to halt a slide in the yen after it fell to a fresh 40-year low.
The coordinated intervention was the first since 2011, when both countries took action together to weaken the yen after the devastating earthquake and tsunami that hit eastern Japan.
Both Japan's Ministry of Finance and US Treasury Secretary Scott Bessent said at the time that they would not hesitate to conduct more joint interventions in the future. Bessent has also been ramping up pressure on the BOJ to raise interest rates to help support the yen, calling on its Governor Kazuo Ueda to "do the right thing."
"If [the yen] remains weak despite higher rates, the resulting inflation pressure could force the BOJ to tighten faster than markets or Japan's government would like," Akoner said.
Related Topics
- International Business
- Japan
- Japanese Yen (JPY)
- US Federal Reserve
Source
BBC NewsWestern
Part of this Story
Bank of Japan Raises Rate to 1.25%, Highest in 31 Years, in 7-2 Vote