BOJ Raises Rates to 31-Year High Amid Inflation Worries

The Bank of Japan (BOJ) raised its interest rates to a 31-year high on September 18, signaling a shift towards preventing inflation from exceeding its target. The central bank increased its policy rate to 1.25 percent from one percent in a 7-2 vote, marking its first increase in three months.

BOJ Governor Kazuo Ueda stated that the focus has shifted from pushing prices towards its target to guarding against an overshoot of two percent inflation. He emphasized the importance of stabilizing underlying inflation at two percent and warned that a materialization of risks could have a negative impact on Japan's economy.

The rate hike takes Japanese rates closer to levels the BOJ considers neutral for the economy, marking another step away from decades of ultra-low rates that established the yen as a cheap global funding currency. Analysts polled by Reuters expect the BOJ to raise rates to 1.5 percent by the end of March next year and to 1.75 percent in the second quarter of 2027.