Japan’s central bank has raised interest rates to their highest level in three decades, citing inflation risks linked to rising energy costs following the US-Israel war on Iran.
Key Points
Bank of Japan rate hike
The Bank of Japan (BOJ) voted 7–1 to raise its benchmark interest rate to 1 percent.
The increase marks the highest Japanese interest rate level since 1995.
The move continues Japan’s shift away from decades of ultra-low and negative interest rates.
Inflation concerns
The BOJ said rising oil prices have increased business costs, which may push up prices across the economy.
The central bank warned inflation could rise above its 2 percent target.
Japan imports about 95 percent of its crude oil from the Middle East, making it vulnerable to energy price shocks.
Government response.
Prime Minister Sanae Takaichi’s government has introduced measures to control energy costs, including:
releasing oil from strategic reserves,
providing subsidies for household gas and electricity bills.
Japan’s core inflation rose 1.4 percent year-on-year in April, partly due to government support measures.
The BOJ began moving away from negative interest rates in 2024 after years of ultra-loose monetary policy.
Japan’s economy has shown signs of recovery, with GDP growing at an annualised 2.1 percent in the first quarter of 2026.
Japan’s latest rate increase reflects efforts to control inflation and prepare the economy for more normal monetary conditions after decades of low growth and deflation.
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