Interest Rate in Japan Raised to 31-Year High

The Bank of Japan raised its benchmark interest rate from 1% to 1.25% as part of steps moving away from decades of ultra-low borrowing costs, reaching the highest level seen since 1995.

Rate Hike and Global Trends

The Bank of Japan raised the interest rate from 1% to 1.25% in a widely anticipated move carried out on Friday.

This development coincided with a period when major central banks around the world have been raising interest rates as high energy prices triggered by the war in Iran fueled inflation.

Central Bank's Tightening Steps

The Bank of Japan has continued to gradually raise interest rates since 2024, when they stood at minus 0.1%.

The bank has carried out six rate hikes over the past two and a half years, aiming to catch up with the levels of other major economies.

Inflation and Economic Challenges

Japan continues to face various economic challenges such as a weak yen, rising prices, and a shrinking workforce.

According to official data released, core inflation eased to 1.7% in August while remaining close to the bank's 2% target level.

Energy Supply and Foreign Exchange Pressure

Global oil and gas prices have increased this year due to shipping disruptions in the Strait of Hormuz.

Being largely dependent on Middle Eastern energy, Japan remains in a vulnerable position against these supply interruptions.