Bank of Japan Hikes Interest Rate to 1.25% Amid Inflation Concerns

Japan's central bank, the Bank of Japan, has raised its benchmark interest rate to 1.25%, marking the highest level in 31 years. This decision comes after decades of keeping interest rates near or below zero to stimulate borrowing and spending and combat deflation.

The rate increase was expected, following a two-day monetary policy board meeting. Bank of Japan Governor Kazuo Ueda said the move was made while considering various risks, including the war in Iran, the growing demand for artificial intelligence, and currency fluctuations.

Ueda noted that inflation is close to the targeted 2%, and another rate hike may be possible later this year or early next year. However, he emphasized the need to monitor wage growth and other risk factors before making further decisions.

The move has been closely watched by global markets, particularly after the US Federal Reserve raised its key rate earlier in the week. The Bank of Japan's decision is also seen as a response to pressure from the US to raise rates, given concerns about the weakening yen. Despite the rate hike, the US dollar strengthened momentarily, reaching above 157 yen.