Bank of Japan Raises Interest Rates to 31-Year High Amid Inflation Concerns

TOKYO: The Bank of Japan (BOJ) raised interest rates to a 31-year high on Tuesday, marking a significant step in the gradual normalisation of monetary policy as it seeks to contain rising price pressures linked to global energy shocks stemming from the Iran war.

The move, the first rate increase since December, brings the BOJ in line with other major central banks tightening monetary conditions to combat inflation, including the European Central Bank.

In a widely anticipated decision, the BOJ lifted its short-term policy rate to 1% from 0.75%, taking borrowing costs to levels not seen since 1995.

In its statement, the central bank said the risk of Japan’s economy deteriorating sharply due to the Middle East conflict had eased, citing government measures aimed at reducing household fuel burdens and progress in securing alternative energy supplies.

However, the BOJ warned that inflationary pressures remain a concern. It noted that companies are increasingly passing higher oil costs along supply chains at a “relatively fast pace,” which could drive up consumer prices across a broad range of goods.

“Taking into account that medium- and long-term inflation expectations have also continued to increase, there is a risk of underlying inflation deviating above our price target,” the BOJ said, underscoring its cautious outlook despite signs of economic resilience.