The central bank voted 7-1 on Tuesday to increase rates by a quarter percentage point, continuing its gradual shift away from the ultra-low interest rate policies that have defined Japan’s economy for decades.
The Bank of Japan (BOJ) has raised its benchmark interest rate to 1 percent, the highest level since 1995, as the country faces growing inflation pressures linked to rising energy costs caused by the United States-Israel war with Iran.
The central bank voted 7-1 on Tuesday to increase rates by a quarter percentage point, continuing its gradual shift away from the ultra-low interest rate policies that have defined Japan’s economy for decades.
The move marks another step in the BOJ’s efforts to normalize monetary policy after years of economic stagnation and deflation.
In a statement, the BOJ said inflation remains close to its target, but higher oil prices are beginning to affect business transactions and could push up the cost of goods and services across the economy.
The bank warned that inflation could rise above its 2 percent target if current trends continue.
Japan is particularly vulnerable to higher energy prices because it relies heavily on imported oil, with about 95 percent of its crude oil coming from the Middle East before the conflict began.
To reduce the impact on households and businesses, the government of Prime Minister has introduced measures including subsidies for electricity and gas bills and the use of strategic oil reserves.
Despite global economic uncertainties, Japan’s economy has shown signs of improvement.
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