Bank of Japan Raises Interest Rate to 1% to Combat Inflation

The Bank of Japan (BOJ) has increased its short-term policy interest rate from 0.75% to 1%, marking the highest level since 1995. The decision aims to address rising inflation risks driven by global energy price increases.

Key points

• The policy shift was approved by seven out of eight policy board members during the two-day meeting ending June 16, 2026.
• The central bank announced it will discontinue the reduction of government bond purchases starting next April, maintaining a monthly purchase volume of 2 trillion yen.
• The Nikkei 225 index reached a record high of over 70,000 points following the announcement.
• BOJ Governor Kazuo Ueda was absent from the meeting due to hospitalization, making the decision an unusual occurrence for the institution.

Why it matters

This move represents a significant step in Japan's normalization of monetary policy after decades of ultra-low interest rates, reflecting global economic pressures and shifting inflationary trends.