Japan’s central bank has lifted its benchmark interest rate to 1.25%, the highest since 1995. The decision, which was anticipated by markets, aims to guard against inflation exceeding the Bank of Japan’s 2% target.
The Bank of Japan’s board concluded its two-day policy session by voting 7-2 in favor of a quarter-point rate hike from 1%. Dissenting members Toichiro Asada and Ayano Sato, both appointed earlier this year by Prime Minister Sanae Takaichi and identified with reflationary policy views, opposed the increase.
This adjustment comes as part of a more accelerated series of rate rises, following the bank’s initial move towards policy normalization in March 2024. The interval between rate hikes has shortened to three months, compared to six months previously.
The official statement accompanying the decision cited concerns that inflation could climb above its stated target. The central bank emphasized its preference to maintain price increases around 2% in order to avoid any negative economic repercussions.
Recent data indicates Japan’s headline inflation rate reached 1.9% in August, while core inflation measured 1.7%, slightly down from July’s figure.
