Bank of Japan Raises Interest Rates by 25 Basis Points to Highest Level in More Than Three Decades

The Bank of Japan raised its benchmark interest rate by 25 basis points on Friday, a move widely anticipated by markets, while signaling that further policy tightening remains on the table.

The decision underscores the BOJ’s commitment to addressing rising inflationary pressures, which have been driven largely by elevated energy costs. Policymakers voted 7-2 to increase the policy rate from 1.0% to 1.25%, marking the highest level in more than three decades and further distancing Japan from the ultra-loose monetary stance that long supported the yen’s role as a low-cost funding currency.

Speaking after the decision, BOJ Governor Kazuo Ueda said the central bank’s focus has shifted as underlying inflation moves closer to its 2% target. While economic and price developments remain broadly in line with the BOJ’s projections, Ueda highlighted the growing risk of inflation overshooting the target, which could weigh on the broader economy.

Against this backdrop, the central bank sees maintaining stable inflation around 2% as its primary objective.

Despite the rate hike, the Japanese yen failed to gain support and weakened against most major currencies. Investors appeared more focused on the absence of a strongly hawkish policy signal and the split vote, with two dovish members favoring a more cautious approach to raising borrowing costs.