BOJ hikes rates as yen falls

The Bank of Japan raised interest rates by a quarter of a percentage point to 1.25%, the highest level since April 1995, in response to rising inflation and the cost of imported energy resulting from the war in the Middle East. Most members of the board approved the increase, while two members opposed it, causing the yen to decline by 0.7% against the dollar to approximately 157.1 yen, even though raising interest rates typically strengthens the currency. The governor clarified that the bank is not committed to a specific path of future rate increases, hinting at the possibility of larger hikes if inflation risks intensify sharply. He pointed out that inflation in August reached 1.9%, approaching the bank’s target of 2%. The report predicted that core inflation would reach 2.5% during the fiscal year 2026, with limited impact on economic growth, which is expected to expand by 0.6%.

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