Tokyo: The Bank of Japan has raised its benchmark interest rate to 1 per cent, the highest level since 1995, as policymakers seek to address inflationary pressures driven by rising global energy costs.
The central bank increased its policy rate from 0.75 per cent to 1 per cent, marking another step in Japan’s gradual shift away from decades of ultra-low interest rates. The BOJ began tightening monetary policy in March 2024 with its first rate hike in 17 years after maintaining near-zero rates for more than two decades.
The move comes as higher oil and gas prices, partly linked to tensions in the Middle East, have increased living costs and inflationary pressures. Japan’s wholesale prices rose more than 6 per cent in May compared with a year earlier, the fastest pace in three years.
Economists say Japan is transitioning from a prolonged period of deflation to a more inflationary environment. The BOJ believes emergency monetary measures introduced during years of weak growth are no longer necessary, although officials continue to balance inflation control against the risk of slowing economic activity.
The rate increase is also expected to support the Japanese yen, which has faced pressure against major currencies such as the US dollar and euro. Despite the latest hike, Japan’s interest rates remain lower than those of many major economies
