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

The Bank of Japan has raised its policy interest rate from 1.0% to 1.25%, marking the highest level in 31 years, as policymakers respond to mounting inflation pressure.

The decision was made by a 7-2 majority at the Bank's Policy Board meeting ending on September 18th. Governor Kazuo Ueda and six other members supported the move, while Toichiro Asada and Ayano Sato voted against it.

The rate increase is expected to encourage borrowing costs to rise, with the uncollateralised overnight call rate remaining at around 1.25%, and the basic loan rate rising to 1.5%. The new guideline will take effect on September 24th.

The Bank of Japan's decision aims to combat inflation risks, as underlying CPI inflation has been approaching its 2% price-stability target, and medium- to long-term inflation expectations have continued to rise. Producer-price inflation remains elevated due to higher crude-oil prices, stronger global AI-related demand, and a weaker yen.