Japan lifts interest rates to counter 'shocking' inflation

The Bank of Japan raised interest rates to 1.25 percent, aiming to combat rising inflation in the country. This move follows a June increase that brought rates to 1 percent, marking the highest level in Japan since 1995. Inflation in Japan currently hovers around 2 percent, though the central bank worries it could climb further.

Factors driving this inflation include high energy costs, demand for AI products, and fluctuations in exchange rates. The bank's decision comes after almost 30 years of maintaining 0 percent interest rates. Professor Fujiwara from Keio University and the University of Tokyo noted that even 2 percent inflation may be shocking for some Japanese people, who have grown accustomed to near-zero rates.

Inflation in Japan surged in 2021 due to the COVID-19 pandemic, and later increased further due to wars in Ukraine and the Middle East. The Bank of Japan plans to continue raising interest rates and adjusting its monetary policy based on economic and price conditions, aiming to stabilize inflation around 2 percent.