BOJ Raises Rates to 31‑Year High, Yen Slides Despite Hike

The Bank of Japan (BOJ) lifted its policy rate to 1.25 % on Friday, the highest level in 31 years, and signalled it is prepared to continue tightening as inflation pressures mount.

The decision, passed 7‑2, saw two board members – Toichiro Asada and Ayano Sato – dissent, signalling a cautious approach to further hikes. The move followed similar actions by the U.S. Federal Reserve and the European Central Bank, all grappling with inflation driven by higher oil prices, expansive fiscal policy and the surge in AI‑related spending.

While the hike was expected to support the yen, the currency actually fell, trading at 156.91 ¥ per U.S. dollar after the announcement. The dip reflects market unease over the BOJ’s relatively mild stance and the presence of dovish dissenters.

BOJ Governor Kazuo Ueda said that with underlying inflation approaching the 2 % target, the bank’s focus had shifted to stabilising prices. In its statement, the BOJ noted that wholesale inflation remains high and that business‑to‑business price pressures are now spilling into consumer prices.

The 1.25 % rate brings the policy rate within the BOJ’s estimated neutral range of 1.1 %–2.5 %, the level that neither cools nor fuels growth. However, the central bank still lags behind global peers, whose policy rates are higher.

Economists note that the BOJ’s cautious tone and the presence of dissenters leave room for uncertainty about how far it can push rates before the economy shows signs of strain.