The Bank of Japan (BOJ) has made a significant move by raising its main interest rate to 1% from 0.75%, its highest level since 1995. This decision comes as a response to the surge in global energy prices and inflation, which have put pressure on countries like Japan that rely heavily on oil and gas from the Middle East.
Japan's central bank has been gradually raising its rate since March 2024, marking the country's first hike in 17 years. The move is aimed at cooling inflation, which has been low in Japan until recently.
Japan's wholesale prices climbed by more than 6% in May from a year earlier, rising at the fastest pace in three years. The BOJ faces a tricky trade-off: raising interest rates could help lower inflation, but higher rates also make borrowing costlier, increasing expenses for the government and businesses.
The decision to raise rates also comes as the bank aims to stabilise the yen, which has come under pressure from other major currencies like the US dollar and the euro. Even with the hike, Japan's interest rate remains low compared to other big economies, such as the US and UK.
Experts suggest that this move could signal a slow global realignment, as other central banks in the US and UK keep their rates on hold. The impact of this decision will be closely watched, particularly in the UK, where savers, mortgage holders, and investors will be affected by the global economic shifts.