Japan Raises Interest Rate to New 31-Year High to Curb Rising Prices
BBC News reports that Japan's central bank, the Bank of Japan (BOJ), has raised its main interest rate to a fresh 31-year high, reaching 1.25%. This increase follows six previous hikes over the last two and a half years, starting from a minus 0.1% in 2024.
The move is in line with major central banks worldwide addressing higher energy prices caused by the Iran war, leading to rising inflation. The US Federal Reserve raised its benchmark interest rate for the first time in over three years on Wednesday, and the European Central Bank also increased its borrowing costs earlier this month.
Japan faces economic challenges including a weak yen, rising prices, and a shrinking workforce. Despite an easing of inflation to 1.7% in August, the BOJ aims to reach a 2% target level.
Global oil and gas price rises have made Japan particularly vulnerable due to its heavy reliance on Middle Eastern energy supplies. The yen has also been under pressure, with coordinated interventions by Tokyo and Washington in August to halt its slide to a 40-year low. US Treasury Secretary Scott Bessent has urged the BOJ to raise interest rates to support the yen.