Japan raises interest rate to new 31-year high
The Bank of Japan has increased its benchmark interest rate to 1.25%, reaching a level not seen since 1995 amid economic and energy pressures.
Stock photo for illustration only, not from the actual event
- The Bank of Japan (BOJ) raised its main interest rate to 1.25%.
- This marks a fresh 31-year high not recorded since 1995.
- Global central banks are hiking rates due to rising energy inflation.
- Japan aims to stabilize the weak yen and counter rising import costs.
Japan's central bank has raised its benchmark interest rate to a fresh 31-year high, continuing its departure from decades of ultra-low borrowing costs as the nation faces escalating economic pressures.
In a widely anticipated move on Friday, the Bank of Japan (BOJ) increased the rate from 1% to 1.25%, reaching a level not seen since 1995. The central bank has steadily hiked rates six times over the past two and a half years, starting from a minus 0.1% rate recorded back in 2024, as it attempts to align its monetary policy with other major global economies.
Stock photo for illustration only, not from the actual event
The rate hike arrives as major central banks across the globe raise borrowing costs to combat inflation fueled by soaring energy prices resulting from the war in Iran. On Wednesday, the US Federal Reserve raised its benchmark rate for the first time in over three years, while the European Central Bank also increased its borrowing expenses earlier this month.
Japan faces severe domestic economic challenges, including a persistently weak yen, rising consumer prices, and a shrinking workforce. Official figures released on Friday indicated that core inflation eased slightly to 1.7% in August from 1.8% the previous month, remaining close to the bank's target of 2%.
Shifting away from decades of deflationary pressure and negative interest rates, the Bank of Japan's aggressive tightening cycle highlights the severe impact of imported energy inflation on resource-scarce nations, while reinforcing diplomatic and financial cooperation with the US to support the weakening yen.
Global oil and gas prices have surged this year due to shipping disruptions through the crucial Strait of Hormuz caused by the Iran conflict. Japan remains particularly vulnerable to these supply chain interruptions given its heavy reliance on Middle Eastern energy imports, adding further downward pressure on the domestic currency.
Source: BBC Business
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