Japan Raises Interest Rates to 31-Year High Amid Rising Energy Prices

The Bank of Japan (BOJ) lifted its policy rate to 1% from 0.75% on Tuesday, the first real rate increase in 31 years and the first major hike in 17 years.

The move was prompted by a surge in global energy prices, which has pushed inflation higher in Japan and mirrored similar rate increases by other central banks amid the US‑Israel conflict’s commodity price pressure.

Historically, Japan fought a severe asset‑price collapse in the 1990s, cutting rates aggressively and keeping them near zero for two decades as growth stalled and prices fell.

Japan’s headline inflation closed at 1.4% in April, still below the BOJ’s 2% target, yet wholesale prices rose 6% in May, the fastest pace in three years.

Higher rates could help cool inflation, but they also raise borrowing costs for the government and businesses, creating a delicate trade‑off for the bank’s policy makers.

BOJ Governor Kazuo Ueda, who was hospitalized this week, has reiterated his willingness to raise rates if the risk to prices outweighs economic downside, signalling a shift away from emergency monetary policy.

The hike also aims to steady the yen, which traders believe is undervalued against the U.S. dollar and euro, while Japan’s policy remains lower than rates in the U.S. and U.K., which hover above 3%.