In a decisive move to combat rising prices, Japan’s central bank has raised its key interest rate to around 0.75%—the highest level since 1995. This quarter-point increase by the Bank of Japan (BOJ) marks a significant policy shift after decades of near-zero rates.
The decision comes as Japan grapples with a cost-of-living squeeze. Core inflation, excluding volatile food and energy prices, held steady at 3% in November, still above the BOJ’s 2% target. A weak yen has driven up import costs, fueling inflation and squeezing households.
Governor Kazuo Ueda led the policy shift, supported by Prime Minister Sanae Takaichi, who has made inflation a top political priority. However, the hike also raises government borrowing costs—a delicate balance for a debt-laden nation.
Interestingly, Japan is moving against the global trend. While the BOJ tightens, the Bank of England and U.S. Federal Reserve are cutting rates to support their economies.
Economists see this as a historic turning point. Many predict another hike next year, potentially pushing the benchmark rate to 1%. Yet, analysts caution that higher rates alone may not swiftly strengthen the yen or curb inflation, as markets have largely anticipated this move.
