Japan just did something it hasn’t done in over 30 years. The Bank of Japan hiked its benchmark interest rate to 1% on Tuesday, a level the country hasn’t touched since September 1995.
The 25 basis point increase, lifting the policy rate from 0.75%, passed with a 7-1 vote among board members. The lone dissenter apparently had concerns about what tighter monetary policy might do to economic growth.
Why the BOJ pulled the trigger
The short answer: inflation from energy prices that won’t quit. Rising costs tied to Middle East tensions have been spreading through Japan’s economy, pushing underlying inflation toward and potentially beyond the BOJ’s 2% target.
This marks the first rate increase since December 2025, when the central bank moved to 0.75%. The BOJ has signaled it will continue raising rates as necessary, essentially telling markets to expect more of the same if inflation data warrants it.
