The Bank of Japan (BOJ) has raised its main interest rate from 1% to 1.25%, reaching a level not seen since 1995. This change reflects the central bank's shift away from years of ultra-low borrowing costs as Japan grapples with rising economic pressures. This adjustment was anticipated and marks the sixth increase since the BOJ began raising rates from a previous low of minus 0.1% in 2024.
Read More
Global energy prices, impacted by the ongoing conflict in Iran, have contributed to rising inflation, prompting many central banks worldwide to increase rates. In Japan, inflation saw a slight decrease, with core inflation at 1.7% in August, down from 1.8% in July, yet still near the BOJ's 2% target.
Japan's economy faces challenges including a weak yen, increasing prices, and a declining workforce. The yen has struggled recently, prompting Tokyo and Washington to intervene jointly in August to stabilize its value after it hit a 40-year low. This coordinated effort marked the first joint intervention since 2011, in the wake of the devastating earthquake and tsunami in eastern Japan.
US Treasury Secretary Scott Bessent has urged the BOJ's Governor Kazuo Ueda to raise rates further to support the yen. Analysts caution that if the yen's weakness persists despite rate hikes, it could exert additional inflationary pressure, leading the BOJ to tighten monetary policy more aggressively than anticipated.