Key facts
- The Bank of Japan raised its main interest rate to 1.25% from 1%.
- This is the highest level the rate has reached since 1995.
- The BOJ has raised rates six times in the last two and a half years.
- Core inflation in Japan eased to 1.7% in August from 1.8% in July.
- Japan's Ministry of Finance and US Treasury Secretary Scott Bessent jointly intervened in August to support the yen.
- US Treasury Secretary Scott Bessent has urged the BOJ to raise interest rates.
The Bank of Japan (BOJ) on Friday increased its main interest rate to 1.25% from 1%, marking a fresh 31-year high as it continues to move away from decades of ultra-low borrowing costs. This move signals a shift in monetary policy amid increasing economic pressures, including rising inflation and a persistently weak yen.
The BOJ has been steadily raising rates since 2024, when the rate stood at minus 0.1%. This latest hike is the sixth in the past two and a half years, bringing the rate to a level not seen since 1995. The central bank aims to bring its policy closer to that of other major economies.
Official figures released on Friday showed that Japan's core inflation eased slightly to 1.7% in August from 1.8% in July, remaining close to the BOJ's 2% target. While this inflation rate is not high by international standards, rising prices are a relatively new phenomenon in Japan, which has experienced low inflation or deflation for about three decades.
Japan is particularly vulnerable to global energy price increases, exacerbated by disruptions to shipments through the Strait of Hormuz due to the Iran war. The country's currency, the yen, has also faced significant pressure. In August, Tokyo and Washington confirmed a joint intervention to halt the yen's slide after it hit a 40-year low. This was the first such coordinated action since 2011. US Treasury Secretary Scott Bessent has publicly urged the BOJ Governor Kazuo Ueda to raise interest rates to support the yen.