In brief
Japan’s central bank has increased its main interest rate to 1% from 0.75%, a move that marks the first rate hike in 17 years and the highest level since 1995. The decision follows a surge in global energy costs and rising wholesale inflation, prompting the BoJ to re‑enter normal monetary policy. While Japan’s overall inflation remains below the 2% target, the move signals a cautious attempt to curb price rises without stifling borrowing. The change comes amid broader global rate hikes, with the US and UK already above 3%. Bank Governor Kazuo Ueda, who missed the meeting due to health issues, has reiterated a willingness to raise rates further if inflation risks outweigh economic costs.
The Bank of Japan (BOJ) has lifted its policy rate to 1%, up from 0.75%, marking its first interest‑rate hike in 17 years and the highest level since 1995.
The move follows a sharp rise in global energy costs and a spike in wholesale prices, which climbed more than 6 % year‑on‑year in May – the fastest pace in three years. While overall consumer inflation remains below the BOJ’s 2 % target, the central bank is eager to test a normal monetary policy after decades of deflationary conditions.
Japan’s interest rate is still low compared with major economies. The United States and the United Kingdom currently maintain rates above 3 %, and both banks are expected to hold their rates steady in this week’s meetings.
The decision to hike rates is also aimed at stabilising the yen, which has come under pressure from the U.S. dollar and the euro. UCSD professor Ulrike Schaede said the yen’s cheapness is no longer a problem and a stronger currency would not harm the economy.
Governor Kazuo Ueda missed the meeting due to hospitalisation for an infected liver cyst, but he has repeatedly signalled a willingness to raise rates if inflation risks outweigh economic costs.
Prime Minister Sanae Takaichi, who has leaned towards spending stimulus, has not opposed the BOJ’s shift but faces mounting pressure to curb Japan’s inflationary trend.
By signalling a return to conventional policy, the BOJ may also be nudging the global financial system towards a slow realignment, analysts suggest.
