The Bank of Japan raised its policy interest rate by 25 basis points to 1 percent on Tuesday, reaching its highest level in 31 years as the central bank continues its monetary policy normalization process.
The decision was approved by a 7-1 vote among policy board members, with board member Toichiro Asada dissenting and favoring keeping rates unchanged. Bank of Japan Governor Kazuo Ueda was absent from the meeting due to hospitalization for treatment of a liver cyst infection, with Deputy Governor Masayoshi Uchida presiding over the proceedings.
The rate increase comes amid rising inflationary pressures in Japan, with producer prices rising 6.3 percent year-on-year in May, the largest increase in more than three years. Energy costs have been a significant driver of the acceleration, partly due to geopolitical tensions affecting global oil markets.
Following the announcement, Japan’s Nikkei 225 index rose 0.46 percent and briefly surpassed the 70,000 mark for the first time, while the yield on 10-year Japanese government bonds increased by 3 basis points to 2.615 percent.
The Bank of Japan stated that it will continue its quarterly reduction of bond purchases through the end of fiscal year 2026, before pausing the tapering process from April 2027 onwards, maintaining monthly Japanese government bond purchases at approximately 2 trillion yen.
