BOJ Hits 31-Year High with Rate Hike to 1.25%

The Bank of Japan (BOJ) has taken its benchmark interest rate to a 31-year high, raising it by 25 basis points from 1% to 1.25%. This move was widely expected and approved by a 7-2 vote.

This decision marks another step in the BOJ's gradual normalization of monetary policy after years of near-zero or negative interest rates. The central bank has shifted its focus from deflation risk to potential entrenched inflation, with Japan's current inflation rate close to the 2% target.

The significance of this move goes beyond the quarter-point increase itself. Higher Japanese rates change the equation for global investors who had been using cheap yen borrowing to finance investments in higher-yielding assets elsewhere, contributing to what became known as the yen carry trade.