Japanese Key Interest Rate at Highest Level in 30 Years - Japanese Key Interest Rate at Highest Level in 30 Years
The Bank of Japan has raised its key interest rate to 0.75%—the highest level in nearly three decades. This marks the first increase since 1995 and follows a unanimous decision by the central bank’s policymakers. The move comes as inflation remains elevated, driven largely by rising food costs.
Governor Kazuo Ueda confirmed that sustained growth in core inflation prompted the rate hike. He pointed to persistent price pressures, particularly in food, as a key factor behind the decision. The benchmark rate, which determines how much banks pay to borrow from the central bank, now sits at its highest point in 29 years.
Economist Tobias Basse of NordLB supported the move, calling it necessary given the current price environment. The Bank of Japan also signalled that further increases could follow if economic conditions develop as expected. Despite the rate rise, the yen weakened against all major currencies. Analysts at Commerzbank attributed this to the central bank’s long-standing communication on future policy steps, which they said had already been priced into markets.
The decision lifts borrowing costs for financial institutions and signals a shift in Japan’s monetary policy. With inflation holding firm, the central bank has indicated that more hikes may be on the way. The yen’s reaction, however, suggests investors had anticipated the move well in advance.
