Bank of Japan Raises Policy Rate to 1.0%, Highest Since 1995

Overview

• The Bank of Japan increased its policy rate by 25 basis points to 1.0%, marking its highest policy rate since 1995 and following its last move in December.
• The BOJ said it took the step because inflation rose after the war in the Middle East disrupted oil supplies and pushed global energy costs higher.
• The yen has weakened sharply toward about ¥160 per dollar and the government spent roughly ¥11.7 trillion last month supporting the currency, yet the BOJ still moved to raise rates.
• The decision comes after recent tightening by other central banks including the ECB and Bank Indonesia and arrives before an upcoming U.S. Federal Reserve meeting that markets are watching for further direction.
• The rate rise signals a clear policy shift away from decades of ultra-low Japanese interest rates and could raise borrowing costs for households and businesses while creating new volatility in currency and global bond markets.