The Bank of Japan (BOJ) raised its key policy interest rate to a 31-year high of 1.0 percent on Tuesday following a two-day policy meeting, as it seeks to address growing inflationary pressures linked to elevated crude oil prices caused by tensions in the Middle East and the continued weakness of the yen, News.Az reports, citing Kyodo.

In its first rate increase since December, the central bank lifted the short-term policy rate from 0.75 percent.

The decision was made in the absence of BOJ Governor Kazuo Ueda, who is currently hospitalized while receiving treatment for a hepatic cyst infection. The recent agreement between the United States and Iran to end the conflict may also have influenced the bank’s decision-making process.

In a statement, the BOJ warned that underlying inflation could exceed its 2 percent target, citing the risk that higher crude oil prices may prompt companies to increase prices in business-to-business transactions at a relatively rapid pace. The bank said such price increases could eventually spread to consumers, leading to broader rises in prices across a wide range of goods and services.

The central bank also signaled that it remains prepared to continue raising interest rates depending on future developments in economic activity, inflation trends and financial market conditions.

Among the remaining eight policymakers excluding Ueda who discussed the policy change, the rate hike decision was opposed by Toichiro Asada, viewed by the market as a proponent of reflationary policies in favor of aggressive monetary easing, who joined the Policy Board in April.

The bank also said it will slow the pace of reductions in Japanese government bond purchases from April 2027, while maintaining the current pace of reducing them by about 200 billion yen every quarter through March 2027, a decision coming at a time when yields on long-term interest rates have been rising rapidly.

The monthly amount of bonds purchased will be cut to around 2.1 trillion yen in the January-March period and to about 2 trillion yen from April 2027, according to the plan.

News.Az 

By Nijat Babayev