Bank of Japan Raises Interest Rate to 1.25 Percent on September 18 in Split 7-2 Vote, Highest Level Since April 1995 Amid US Pressure and Rising Inflation

The Bank of Japan raised its benchmark interest rate by 0.25 percentage points to 1.25 percent on Friday September 18, the highest level since April 1995, in a split 7-2 vote that revealed dissent within the board and marked the shortest interval between rate increases under Governor Kazuo Ueda since he assumed the post in 2023. The move came at the end of a two-day monetary policy board meeting, with board members Toichiro Asada and Ayano Sato dissenting and calling for keeping the policy rate unchanged at around 1 percent, casting doubt on the outlook for further policy tightening. The yen dropped following the announcement, with the decision coming just days after the US Federal Reserve also raised its key rate this week and amid unusually explicit calls for further policy normalization from Washington. The rate hike was widely expected and predicted by all economists surveyed by Bloomberg, driven by rising inflation and wages as well as pressure from the Trump administration, which has expressed concerns about the weakening yen. The US and Japan recently intervened together to prop up the yen, which is currently trading at about 155 per dollar. Governor Kazuo Ueda said the decision was reached after looking at various risks including the war in Iran, the expanding market demand for artificial intelligence, and currency fluctuations. Japan is grappling to contain inflation driven by factors including rising energy prices, global supply pressures, and domestic inflation exceeding the 2 percent target. The raise by 0.25 percentage points marks the first hike since June, accelerating a tightening cycle that began from a negative rate of minus 0.1 percent in March 2024 as the BOJ attempts to normalize monetary policy after decades of keeping interest rates near or below zero to counter deflation. The move takes interest rates closer to levels the BOJ deems neutral to the economy, marking another step away from decades of ultra-low rates that cemented the yen's statu