Bank of Japan raises rates to 1%, highest since 1995
The Bank of Japan raised its benchmark interest rate by a quarter-point to 1 percent on June 16, the highest level since 1995. The decision passed 7-1, continuing the central bank’s slow exit from the ultra-low rates it held for decades; its first hike in 17 years came only in March 2024.
The bank pointed to the risk of “underlying CPI inflation deviating upward to a level above the price stability target of 2 percent.” Core consumer prices rose 1.4 percent year-on-year in April, and the BOJ flagged higher oil prices feeding into business costs — a pressure tied to the conflict around Iran, given that Japan imports roughly 95 percent of its crude from the Middle East.
Raising rates while inflation is partly driven by imported energy is a bet that price pressure will persist rather than fade with oil. A higher policy rate also tends to support the yen, which has been weak against the dollar and has itself made imported fuel and food more expensive.