Bank of Japan Hikes Interest Rate to 1.25 Percent Amid Ongoing Inflation Concerns

The Bank of Japan raised its benchmark short-term interest rate to 1.25 percent on September 18, signaling that more increases may be ahead if inflation and economic trends continue on their current path.

Bank of Japan Governor Kazuo Ueda noted that underlying inflation has been moving closer to the bank's 2 percent target, but warned that risks of overshooting this target could have a negative impact on the economy.

The decision comes as other major central banks have also raised interest rates in recent days. The US Federal Reserve increased its benchmark federal funds rate by 0.25 percentage points to a target range of 3.75-4 percent, while the European Central Bank raised its three key interest rates by 0.25 points.

Two members of the bank's policy board opposed the rate hike, citing concerns that economic conditions did not yet justify it.