Bank of Japan raises interest rates to 30-year high

The Bank of Japan (BOJ) raised its benchmark interest rate by 25 basis points to 1.25% on Friday, marking the highest level since 1995. This decision, approved by a 7-2 vote with board members Toichiro Asada and Ayano Sato dissenting, accelerates the monetary tightening cycle that began in March 2024. The bank cited the need to combat inflation driven by soaring energy costs and the weakness of the yen, noting that the underlying consumer price index is approaching the 2% target.

This move was widely anticipated by markets, with approximately 90% of analysts correctly predicting the rate hike. The central bank indicated that further increases are likely as geopolitical tensions in the Middle East continue to pressure oil prices and fuel inflationary risks. The bank aims to stabilize long-term inflation around the 2% goal while maintaining economic balance, following similar recent policy tightening actions by the European Central Bank and the U.S. Federal Reserve.