Japan raises interest rate to new 31-year high to curb rising prices

The Bank of Japan (BOJ) has increased its main interest rate to a new 31-year high of 1.25%, signaling a shift away from ultra-low borrowing costs and addressing rising economic pressures in the country. This decision was made on Friday, following a pattern of six consecutive rate hikes over the past 2.5 years. The BOJ's move comes as major global central banks, including the US Federal Reserve and the European Central Bank, are also raising their rates in response to surging energy prices due to the ongoing Iran conflict.

Since 2024, the BOJ has been steadily increasing its interest rate from a record low of minus 0.1%. The primary goal is to align Japan's inflation rate with that of other developed economies, which currently stands near the central bank's 2% target level. While this rate is not exceptionally high compared to international standards, it marks a notable shift as Japan has experienced minimal inflation or even deflation for approximately three decades.

The rise in interest rates is aimed at combating various economic challenges facing Japan, such as a persistently weak yen, rising prices, and a shrinking workforce. Analysts note that as central banks across the world tighten monetary policy, the Japanese currency is becoming increasingly attractive to traders, potentially strengthening its value.