Japan's central bank has raised its main interest rate to a fresh 31-year high as it continues to move away from decades of ultra-low borrowing costs.
In a widely expected move on Friday, the Bank of Japan increased the rate from 1% to 1.25%, a level not seen since 1995.
The bank has been raising the rate since 2024, when it stood at minus 0.1%. It has now increased it six times in two and a half years as it tries to reach a level similar to other major economies.
The move came in a week of tightening elsewhere. On Wednesday the US Federal Reserve raised its benchmark interest rate for the first time in more than three years, while the European Central Bank increased its borrowing costs earlier this month. Global oil and gas prices have risen this year, and Japan is heavily reliant on energy imports.
Official figures published on Friday, ahead of the announcement, showed inflation easing slightly. Core inflation fell to 1.7% in August from 1.8% the previous month, remaining close to the bank's 2% target. That is not high by international standards, but rising prices are a relatively new development in an economy that experienced very low inflation or falling prices for around three decades.
The currency has also been under pressure. In August, Tokyo and Washington confirmed they had jointly intervened to halt a slide in the yen after it fell to a fresh 40-year low, the first coordinated intervention since 2011. US Treasury Secretary Scott Bessent has publicly urged the bank's governor, Kazuo Ueda, to "do the right thing" on rates.
"One of the world's last sources of ultra-cheap money is disappearing," said the market analyst Lale Akoner of the investment company eToro.
Akoner added that the pressure may not ease with this decision: "If [the yen] remains weak despite higher rates, the resulting inflation pressure could force the BOJ to tighten faster than markets or Japan's government would like."
The number worth pausing on is not the quarter point. It is the record. The highest interest rate in Japan in thirty-one years is 1.25%.
A record of that kind is not a statement about the size of the number. It is a statement about how long the number stayed below it. Japan has not reached a remarkable rate; Japan has accumulated a remarkable amount of time.
This newspaper regards the mechanism as sound and, unusually for monetary policy, renewable. Six increases have moved the rate 1.35 percentage points since 2024. Each of them arrived at a level the country had not seen for many years, because the country had spent those years not seeing it. The bank is converting its own caution into headlines at roughly a quarter of a point apiece.
The Bank of Japan is therefore not so much raising rates as spending its past. It has thirty-one years of restraint in reserve, and it is drawing on them a quarter of a point at a time.