BOJ Hikes Rates to 31-Year High Amid Pressure from US Treasury Secretary

The Bank of Japan has made a significant move by increasing interest rates to 1.25%, marking its highest policy rate since 1995. This decision was made in a 7-2 vote, with Governor Kazuo Ueda indicating that consecutive rate hikes remain on the table and even suggesting that 50 basis point increases could be possible if conditions warrant it.

The move is seen as a response to pressure from US Treasury Secretary Scott Bessent, who has been advocating for tighter monetary policy in Japan. Bessent's efforts date back to at least May 2026, when he held private meetings with Japanese officials, arguing that Japan's weak yen was creating imbalances and that the country's legacy of Abenomics-era reflation policies had run their course.

Rising energy costs and geopolitical instability have kept price pressures elevated in Japan, forcing the BOJ to try and contain inflation. This marks a significant shift from the BOJ's previous stance, as it dismantles its framework built on massive monetary stimulus to escape deflationary traps.