Japan's central bank has increased its main interest rate to a new 31-year high of 1.25%, up from 1%. This decision by the Bank of Japan (BOJ) on Friday marks a continued shift from decades of ultra-low borrowing costs, amid increasing economic pressures.
The BOJ has been steadily raising its rate since 2024, when it stood at minus 0.1%, with this being the sixth hike in two and a half years. This move aligns with other major central banks globally, which are also increasing rates due to higher energy prices, partly attributed to the Iran war pushing up inflation.
Official figures released on Friday indicated that Japan's core inflation slightly eased to 1.7% in August, down from 1.8% the previous month. Despite this, inflation remains near the bank's 2% target. Japan, heavily reliant on Middle Eastern energy, is particularly vulnerable to global oil and gas price rises caused by disruptions to the Strait of Hormuz shipping route.
The country is also grappling with a persistently weak yen and a shrinking workforce. In August, Tokyo and Washington jointly intervened to stabilise the yen after it reached a 40-year low, the first such coordinated action since 2011.