Japan raises rates to 31-year peak

The Bank of Japan increased its main interest rate from 1% to 1.25% on Friday, the highest level since 1995. This marks the sixth rate hike in two and a half years as the country exits decades of ultra-low borrowing costs.

“One of the world's last sources of ultra-cheap money is disappearing”

Global central banks tightening together

The US Federal Reserve raised rates for the first time in over three years on Wednesday, while the European Central Bank also increased borrowing costs earlier this month. Higher energy prices from the Iran war are pushing inflation globally.

Japan's inflation easing but still elevated

Core inflation fell to 1.7% in August from 1.8% the previous month, staying close to the Bank of Japan's 2% target. This marks a significant shift for a country that experienced very low inflation or deflation for around three decades.

Yen weakness forces rate action

Japan's currency fell to a fresh 40-year low in August, prompting Tokyo and Washington to jointly intervene to halt the slide. This was the first coordinated intervention since 2011, following the earthquake and tsunami.

Energy dependence fuels rate pressure

Japan is heavily reliant on Middle Eastern energy, making it vulnerable to supply disruptions from the Iran war. Global oil and gas prices have risen sharply as the conflict disrupted shipments through the Strait of Hormuz.

US pressure accelerates rate hikes

US Treasury Secretary Scott Bessent has been pushing the Bank of Japan's Governor Kazuo Ueda to raise rates faster to support the yen. Both countries have committed to conducting more joint interventions if needed.