BOJ Raises Interest Rates to 1.25%, Yen Remains Under Pressure

The Bank of Japan (BOJ) has raised its policy interest rate to 1.25%, marking a significant shift away from its long-standing ultra-loose monetary policy.

The decision, which passed by a 7-2 vote, brings the policy rate to its highest level since the mid-1990s and marks another step in the BOJ's gradual normalization of interest rates.

Despite the rate increase, the yen did not strengthen significantly. In fact, it remained under pressure against the US dollar following the decision, with USD/JPY trading at around 156.85 on September 21, down from its previous week's high of around 158.

This highlights an important aspect of foreign exchange markets: a higher interest rate does not automatically translate into a stronger currency. The BOJ's policy rate is now 1.25%, while the Federal Reserve's target range stands at 3.75%-4.00%.