BOJ Hikes Interest Rate to 1.25 Percent Amid Inflation Concerns

The Bank of Japan (BOJ) has raised its policy interest rate by 25 basis points to 1.25 percent, marking the highest level since 1995. This decision is part of the BOJ's monetary policy normalization process that began in March 2024.

The rate hike comes as Japan faces inflationary pressures and a historically weak yen exchange rate. The BOJ cited the risk of inflation deviating upwards beyond its 2 percent target as one of the reasons behind the decision.

BOJ's board members approved the interest rate hike by a 7-2 vote, with two members, Toichiro Asada and Ayano Sato, opposing the increase. They were appointed by Japanese Prime Minister Sanae Takaichi earlier this year and are known as supporters of reflation policies.

The decision marks an acceleration in BOJ's rate hike cycle since the central bank began normalizing its monetary policy in March 2024. Previously, BOJ waited six months before raising rates again; now, the interval is only three months.