BOJ Hikes Rate to 1.25%, Seeks to Curb Inflation Risks

The Bank of Japan (BOJ) has raised its benchmark interest rate to 1.25%, marking the highest level since 1995. The decision, which was anticipated by markets, aims to prevent inflation from exceeding the BOJ's target of 2%. The central bank's board voted 7-2 in favor of a quarter-point rate hike from 1%, with dissenting members Toichiro Asada and Ayano Sato opposing the increase.

The rate hike comes as part of a more accelerated series of rate rises, following the BOJ's initial move towards policy normalization in March 2024. The interval between rate hikes has shortened to three months, compared to six months previously.

The BOJ emphasized its preference for maintaining price increases around 2% in order to avoid any negative economic repercussions. Recent data indicates Japan's headline inflation rate reached 1.9% in August, while core inflation measured 1.7%, slightly down from July's figure.