BOJ Raises Rates to 31-Year High as Inflation Fears Grow

The Bank of Japan (BOJ) raised its interest rates to a 31-year high on September 18, signaling a shift in focus from pushing prices towards its target to preventing inflation from exceeding it. The central bank increased its policy rate to 1.25 percent from one percent in a 7-2 vote, with Board members Toichiro Asada and Ayano Sato dissenting.

The BOJ's hawkish message was met with a weakening yen as investors focused on the dissent from the two policymakers, who argued that the central bank should remain patient in raising borrowing costs. However, Governor Kazuo Ueda emphasized that the central bank's focus has shifted towards stabilizing underlying inflation at two percent.

Ueda noted that if risks of underlying inflation overshooting two percent materialize, it could have a negative impact on Japan's economy. He also stated that the BOJ wants to act pre-emptively to avoid being forced into large moves that could unsettle financial markets.