Bank of Japan Raises Key Interest Rate by 0.75% to 1%

Tokyo. Japan's central bank has raised its key interest rate. For the first time in 31 years amid rising global energy prices, the Bank of Japan (BOJ) has raised its policy rate by 0.75% to 1%.

This decision comes at a time when central banks worldwide are raising interest rates due to rising living costs caused by the Iran war. Japan aggressively cut interest rates in the 1990s to combat the chaos that arose after the bubble of asset and stock price increases burst.

Interest rates in Japan remained near zero for nearly two decades due to deflation and stable growth. After 20 years of deflation, Japan is now in an inflation upcycle, economist Jesper Cole told the BBC. He said that the BOJ wants to return to normal monetary policy as aggressive or crisis management monetary policy is no longer needed in Japan.

Recently, the BOJ has been under pressure to reduce inflation. Inflation has increased in Japan due to the Iran war. In May, retail prices rose by more than 6% compared to a year ago. This rate is the fastest in 3 years. However, overall inflation rate was 1.4% in April. This is less than the BOJ's target of 2%.