BOJ Raises Rates to 31-Year High Amid Inflation Risks

The Bank of Japan (BOJ) has raised interest rates to a 31-year high, signaling a shift towards preventing inflation from exceeding its target. The policy rate was increased to 1.25 percent from one percent in a 7-2 vote, marking the first increase in three months.

Despite the hawkish message, the yen weakened as investors focused on the dissent from two board members, Toichiro Asada and Ayano Sato, who argued that the central bank should remain patient in raising borrowing costs.

BOJ Governor Kazuo Ueda said that with underlying inflation approaching two percent, the central bank's focus had shifted from pushing prices toward its target to guarding against an overshoot. He warned that risks of underlying inflation overshooting two percent could have a negative impact on Japan's economy.

The move follows rate hikes by the BOJ and its European and U.S. counterparts as central banks focus on global inflation risks stemming from the Iran war-driven rise in energy costs, expansionary fiscal policies, and surging demand for AI investment.