BOJ Hikes Rates to 1.25% Amid US Pressure for Stronger Yen

The Bank of Japan (BOJ) has partially tightened its monetary policy by raising interest rates to 1.25%, a 31-year high, in an effort to curb the depreciation of the Japanese currency and control inflation.

This move was widely expected by analysts and came after U.S. Treasury Secretary Scott Bessent repeatedly advocated for a stronger yen.

Sayuri Shirai, a professor at Keio University, notes that the underlying tension is between the central bank, which wants to raise rates to strengthen the yen, and the government of Prime Minister Sanae Takaichi, which prefers low interest rates to support its expansionary fiscal policy.

The rate hike aims to make returns on Japanese assets more appealing to local and foreign investors, thereby strengthening the yen and making U.S. dollar investment more feasible.