Japan’s central bank has increased its main interest rate to a new 31-year high after a surge in global energy prices.
On Tuesday, the Bank of Japan (BOJ) raised its so-called policy rate to 1% from 0.75% – a level not seen since 1995.
The decision comes as some other central banks have raised interest rates this year as the US-Israel war with Iran pushed up the cost of living.
Japan’s interest rates were cut aggressively in the 1990s to combat the fallout from a collapse in prices of assets like property and shares. They had been near zero for two decades as prices fell and growth stagnated.
The bank has been gradually raising its interest rate since March 2024 – at the time it was the country’s first hike in 17 years.
“After twenty years of deflation, Japan is now in an inflationary upcycle,” Japan economist Jesper Koll told the BBC.
“Emergency/crisis management monetary policy is no longer needed and the BOJ wants to get back to a normal monetary policy,” he added.
The BOJ has been under pressure to cool inflation, which was extremely low in the country until relatively recently.
