Bank of Japan Lifts Rates to 1%, Highest Since 1995

Bank of Japan raises key rate to 1%, marking the strongest tightening since the mid‑1990s.

The Bank of Japan has lifted its benchmark rate to a three‑decade peak, attributing the move to inflationary pressures caused by the ongoing US‑Israel conflict in the Middle East.

The BOJ’s widely anticipated quarter‑percentage‑point increase pushed the policy rate to its highest level since 1995, further distancing monetary policy from the ultra‑loose stance that has persisted for decades.

In a statement, the BOJ noted that inflation is tracking on target, but rising oil costs are being passed through to business transactions, potentially driving up prices across a broad spectrum of goods.

The bank warned that, given rising medium‑ and long‑term inflation expectations, underlying consumer‑price index inflation could exceed the 2 percent stability target.

Japan sourced roughly 95 percent of its crude oil from the Middle East prior to the conflict, exposing the nation’s fourth‑largest economy to volatile fuel‑price swings.

Prime Minister Sanae Takaichi’s administration has introduced a suite of measures to curb energy costs, such as tapping strategic oil reserves and subsidising household gas and electricity bills.

Core CPI, which excludes fresh food, increased only 1.4 percent year‑over‑year in April, a rise the BOJ attributes to government actions aimed at alleviating the household impact of higher energy costs.

Min Joo Kang, senior economist for South Korea and Japan at ING, said the hike signals “a positive shift for Japan’s economy, indicating progress toward sustained growth and price stability”.

“The BoJ now views its 2 percent sustainable inflation target as attainable, bolstering its confidence in a gradual policy normalisation”, Kang told Al Jazeera.

The BOJ began exiting decades of ultra‑low and negative rates in 2024, abandoning the -0.1 percent stance with its first rate increase in 17 years in March of that year.

Japan entered a prolonged era of tepid growth and deflation — commonly referred to as the “lost decades” — following the collapse of an asset bubble in the early 1990s.

Successive Japanese governments have struggled to reverse the long‑term decline, though recent tentative signs of recovery suggest a potential upturn.

Japan’s gross domestic product expanded at an annualised 2.1 percent in the first quarter of this year, marking the fastest growth in six quarters.

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