Bank of Japan raises interest rates to 31-year high

On September 18, the Bank of Japan hiked its interest rate to a 31-year high of 1.25%, signaling its commitment to combat persistent inflation driven by soaring oil costs. The decision, the first in three months, brings rates closer to the BOJ's target range, marking a shift away from prolonged ultra-low rates that made the yen a favored currency.

The move came as other major central banks, including the European Central Bank and the US Federal Reserve, had also raised rates to combat rising inflation. Wholesome inflation remained elevated, with price pressures spilling over from business-to-business trading into consumer prices, according to the BOJ's statement. Critics argue that the slow pace of BOJ hikes has contributed to the yen's weakness, which, combined with surging energy costs from the Iran war, has driven up wholesale inflation that is expected to spill over into consumer prices.

US Treasury Secretary Scott Bessent emphasized the need for decisive monetary actions during a meeting with BOJ Governor Kazuo Ueda, urging Prime Minister Sanae Takaichi's administration to refrain from increasing fiscal stimulus, which could counteract the BOJ's efforts to rein in inflation.