Key facts
- The Bank of Japan raised its policy rate to 1%, the highest level since 1995.
- This marks the first rate hike in 17 years and the second since Prime Minister Sanae Takaichi took office.
- The decision aims to combat sustained inflation, fueled by global energy prices.
- The Japanese yen weakened against the U.S. dollar, falling to about 160 yen per dollar.
- Bitcoin surged past $87,000 following the announcement.
The Bank of Japan has increased its main interest rate to 1%, the highest level in 31 years, marking a significant shift from its long-standing ultra-loose monetary policy. This decision, made during Governor Kazuo Ueda's hospitalization, aims to combat sustained inflation driven by soaring global energy prices and to address a weakening Japanese yen. The rate hike, a quarter of a percentage point from 0.75%, is the first in 17 years and the second since Prime Minister Sanae Takaichi took office. Japan's wholesale prices climbed over 6% in May, the fastest pace in three years, though overall inflation remains below the BOJ's 2% target. Despite the rate increase, the yen weakened against the U.S. dollar to approximately 160 yen per dollar, defying expectations of strengthening. Bitcoin surged past $87,000 following the announcement, with some attributing the rise to currency movements and subdued carry trade unwinding. Japan's interest rates remain low compared to other major economies like the U.S. and UK.