Japan raises rates to 31-year high

The Bank of Japan increased its target rate from 1% to 1.25%, the highest since 1995, joining the US Federal Reserve and European Central Bank in tightening policy to combat global inflation.

Two board members dissent

The BoJ's nine-member policy committee was not unanimous, with two members voting against the rate increase, signaling internal disagreement over the pace of tightening.

No preset schedule for hikes

BoJ Governor Kazuo Ueda said the bank has no fixed timeline for future rate increases and will decide at each meeting based on inflation data and economic conditions.

“We don't have any pre-set idea in mind such as once every three months.”

Inflation approaching target

Japan's inflation rate reached 1.9% in August, nearly at the BoJ's 2% target. The bank has shifted from trying to boost inflation to preventing it from overshooting that level.

“Now, underlying inflation is approaching 2%. If risks of underlying inflation overshooting 2% materialise, that could have a negative impact on Japan's economy.”

Yen weakness drove action

The BoJ has been raising rates since 2024 partly because the yen weakened to a 40-year low against the dollar, prompting US and Japanese intervention in July to stabilize the currency.

Markets divided on next move

Analysts disagree on whether the BoJ will raise rates again soon. Some see back-to-back hikes as unlikely, while others expect another increase in December based on inflation concerns.

“We stick with our call for rate hikes roughly every quarter with the next 25 basis points hike in December.”

Global stocks react to decision

Japan's Nikkei stock index rose nearly 2% after the rate increase, while European markets fell 0.5%, reflecting mixed reactions to the BoJ's tightening move.