The Bank of Japan raised its short-term policy rate from 0.75 percent to 1 percent on Tuesday, bringing borrowing costs to the highest level since 1995. This marks the bank's first hike since December and continues a trend of raising rates from near-zero since 2024. The decision was made at a policy meeting convened without the governor in attendance, and the bank signaled that further policy normalization lies ahead.
The widely anticipated move reflects the central bank's concerns about inflation and the weak yen, with energy disruptions contributing to the pressure. Strategists say these factors, along with U.S. pressure and a tanking currency, forced the bank's hand and made it difficult to wait any longer. The decision was made despite the wishes of Prime Minister Takaichi.
Following the announcement, the yen pared gains against the dollar.