Bank Of Japan Raises Rate To 1.25%; Highest Since 1995

(RTTNews) - The Bank of Japan raised its benchmark rate by a quarter point to a 31-year high amid high inflation and weaker yen.

The policy board, governed by Ueda Kazu, decided by a 7-2 majority vote to raise the interest rate to 1.25 percent, marking the highest since 1995. The move was widely anticipated by markets.

The bank had lifted its benchmark rate by 25 basis points in June and had signaled its plan to tighten policy at a gap of around six months.

Board members Asada Toichiro and Sato Ayano, both appointed by Prime Minister Sanae Takaichi, dissented from the increase.

The board said it will continue to raise the policy rate and adjust the degree of monetary accommodation, in response to developments in economic activity and prices as well as financial conditions.

ING economists said the dissent from Asada and Sato point to resistance against the fastest pace of rate increases in more than three decades and suggest they may increasingly act as a brake on further tightening.

Economic activity and prices are developing generally in line with the baseline scenario, the board observed.

Policymakers highlighted that there is a risk that underlying CPI inflation will deviate above price stability target given the situation in the Middle East, expansion in AI-related demand and developments in foreign exchange rates. Inflation is expected to accelerate to a level clearly above 2 percent from the second half of fiscal 2026, the bank said.

The economy has recovered moderately despite the impact of tension in the Middle East. Further, Japan's financial conditions have been accommodative, the bank noted.

The Bank of Japan's decision follows similar actions by the U.S. Federal Reserve and the European Central Bank, as rising oil prices from Middle East tensions pose risks to inflation globally.

Official data released earlier in the day showed that Japan's core inflation slowed to 1.7 percent in August from 1.8 percent in July, while headline inflation remained unchanged at 1.9 percent.