Japan raises interest rate to new 31-year high to curb rising prices

Japan's central bank lifted its benchmark interest rate to a 31‑year high on Friday, moving the policy rate from 1.0% to 1.25% – a level not seen since 1995. The decision, widely anticipated, follows similar tightening moves by the US Federal Reserve and the European Central Bank, both of which raised borrowing costs amid higher energy prices linked to the Iran conflict. The Bank of Japan began raising rates in 2024, when the rate stood at –0.1%. Since then it has implemented six increases over the past two and a half years, steadily pulling the rate toward norms seen in other major economies. Higher rates generally strengthen the yen by making the currency more attractive to investors. Core inflation eased to 1.7% in August, down from 1.8% the previous month, though it remains close to the BOJ’s 2% target. Official data released ahead of the policy meeting showed a modest slowdown in price pressures. Japan continues to face a weak yen, rising consumer prices and a shrinking labour force. Global oil and gas prices have risen this year as the Iran war disrupted shipments through the Strait of Hormuz, a route on which Japan relies heavily for energy imports. In August Tokyo and Washington announced a joint intervention to stop the yen’s slide after it fell to a 40‑year low. The coordinated action marked the first such effort since 2011, when the two countries acted together to weaken the yen after the earthquake and tsunami that struck eastern Japan. Both Japan’s Ministry of Finance and US Treasury Secretary Scott Bessent said they would not rule out further joint interventions. Bessent has also increased pressure on the BOJ to lift rates to support the yen, urging Governor Kazuo Ueda to “do the right thing.” "If [the yen] remains anemic contempt higher rates, the resulting ostentation unit could unit the BOJ to tighten faster than markets oregon Japan's authorities would like," Akoner said.