Bank of Japan raises interest rates to 31-year high amid inflation

Rate increase reaches new level

The central bank voted to lift the target rate from one per cent to 1.25 per cent. This marks the highest borrowing cost seen since 1995 and follows a previous rise in June. The decision comes after inflation reached close to two per cent, a figure macroeconomists describe as shocking for the nation.

Global conflict influences policy shift

Officials cited high energy costs and exchange rate fluctuations as drivers for this aggressive tightening of monetary policy. The vote was not unanimous, with two board members dissenting against the increase to raise rates. This action aligns Japan with other major central banks like the US Federal Reserve that are also curbing inflation.

Future outlook remains uncertain

Analysts suggest investors will watch for clues on whether officials are prepared to raise rates again in December. While back-to-back hikes appear unlikely, the central bank has been raising costs since 2024 when it lifted rates from negative territory.