BOJ Hikes Interest Rate to Combat Rising Inflation Expectations

The Bank of Japan (BOJ) has raised its key interest rate by 25 basis points to 1.25% from 1.0%, citing rising wage and price expectations that could exceed its 2% inflation target.

In a 7-2 majority vote, the BOJ's Policy Board approved the rate increase, which is the highest level since 1995. The central bank has been raising interest rates since 2004.

The BOJ warned that underlying CPI inflation could deviate upward to a level above its price stability target of 2%, due to factors such as firms' behavior shifting toward raising wages and prices, and medium- to long-term inflation expectations rising.