FX.co ★ BoJ Hikes Rate to 31-Year High

The Bank of Japan raised its key short-term interest rate by 25 basis points to 1.25% at its September meeting, in a 7–2 decision. This move, which was widely anticipated by markets, brings the policy rate to its highest level since April 1995 and marks the first increase in three months, underscoring the bank’s continued shift away from decades of ultra-low interest rates.

Board members Asada Toichiro and Sato Ayano dissented from the decision. The central bank cited persistent inflationary pressures, including those driven by higher oil prices, as a key factor behind the hike. Policymakers indicated they intend to continue raising the policy rate and adjusting the degree of monetary accommodation in line with developments in economic activity, prices, and financial conditions, while carefully assessing the appropriate timing and pace of any further moves.

The board also pointed out that core CPI inflation has been rising moderately, as higher business-to-business prices feed through to consumer prices and companies pass increased labor costs on to their selling prices. In addition, the Bank of Japan reiterated that it will closely monitor the economic implications of the conflict in the Middle East.