Japan Raises Interest Rate to Highest Since 1995

Tue Jun 16 2026 07:02:44 GMT+0000 (Coordinated Universal Time)

Japan’s central bank lifts its policy rate to 1% amid surging energy prices, marking the highest rise in 31 years and signaling a shift from decades of low rates.

The Bank of Japan (BOJ) raised its policy rate to 1% from 0.75%, its highest level since 1995, as global energy costs climb. The move signals a tilt toward normal monetary policy after two decades of near-zero rates aimed at combating deflation. Japan’s inflation, driven by rising wholesale prices, remains below the BOJ’s 2% target, yet the bank now weighs borrowing costs against inflation control. Meanwhile, the yen is stabilizing against the dollar and euro, and the hike could hint at a broader global monetary realignment. Finance officials, including BOJ Governor Kazuo Ueda, have become increasingly open to rate increases amid mounting inflationary pressures.

Japan Raises Interest Rate to Highest Since 1995

The Bank of Japan (BOJ) raised its policy rate to 1% from 0.75% on Tuesday, the steepest hike in 31 years. The decision follows a rise in global energy prices that has pushed up inflation in the country.

Instant noodles in a Japanese supermarket

The BOJ’s policy rate is now 1%, a level not seen since 1995, when Japan faced a sharp decline in asset prices. After two decades of near-zero rates aimed at countering deflation, the bank is gradually tightening policy.

In April, Japan’s inflation rate was 1.4%, below the BOJ’s target of 2%. Rising wholesale prices—up more than 6% in May—have exerted pressure on inflation, largely driven by higher oil and gas costs.

The BOJ faces a delicate trade‑off: higher rates could curb inflation but also raise borrowing costs for the government and businesses. Governor Kazuo Ueda, who missed the meeting due to hospitalization, has expressed a positive stance on rate hikes.

Prime Minister Sanae Takaichi, who has called for increased spending, has not publicly opposed the BOJ’s higher‑rate policy, even though she faces pressure to curb inflation.

The rate rise also aims to support the yen amid swings against the U.S. dollar and euro. Economists note that Japan’s rates remain low compared to other major economies, where rates sit above 3% in the U.S. and U.K.

"A slow global realignment is possible as countries adjust monetary policies," said University of California, San Diego professor Ulrike Schaede, citing the BOJ’s move.

Source: BBC News – Business reporter Peter Hoskins