BOJ Rates Leap to 25-Year High Amid Yen Weakness

Japan's central bank has raised interest rates to their highest level since April 1995, voting 7-2 to lift its benchmark rate to 1.25% from 1%. This move aims to steady a weaker yen and cool stubborn inflation.

The Bank of Japan spent decades with near-zero rates, so every step higher is a significant shift in how money is priced. The hike matches expectations tracked by Trading Economics and signals that policymakers think price pressures still have momentum to justify tighter policy.

Some officials worried about recent consumer price index readings looking soft, but policymakers pointed to cost pressures linked to higher oil prices and a weaker currency, noting underlying inflation is running above 1% and could move closer to 2%. The bank also described the economy as in a 'moderate recovery', with exports and factory output improving and demand linked to artificial intelligence supporting activity.

ING, a European bank, now expects two additional quarter-point increases by April 2027. However, it flagged that planned cuts to Japan's consumption tax on food and non-alcoholic drinks could temporarily make headline inflation look tamer.