Bank of Japan Hikes Rate to 1.25%, Highest in 31 Years

The Bank of Japan has raised its benchmark interest rate to 1.25%, the highest in 31 years, following a two-day monetary policy board meeting.

This move comes after decades of keeping interest rates near or below zero to encourage borrowing and spending and counter deflation.

Analysts had expected this increase, and it has been factored into global markets. Bank of Japan Governor Kazuo Ueda said the decision was made after considering various risks, including the war in Iran, AI market demand, and currency fluctuations.

The Japanese economy is recovering gradually, with inflation close to the targeted 2%, according to Ueda. However, two members of the nine-member board dissented, citing concerns about Japan's economic growth strength.

Ueda stressed that more time is needed to see if price increases remain stable and to monitor wage growth and other risk factors before considering further hikes. Another increase could happen later this year or early next year, analysts predict.