BOJ Lifts Rates to 31-Year High as Oil Shock Stokes Inflation Fears

By Megumi Fujikawa

TOKYO--The Bank of Japan raised interest rates to a 31-year high on Tuesday, anchoring its policy path against the inflationary risks of a war-induced spike in energy costs.

The Japanese central bank lifted its policy rate to 1% from 0.75%, bringing borrowing costs to their highest level since 1995. The 7-1 decision marks the bank's first tightening move since last December.

There is a risk of underlying inflation accelerating above the 2% target due to rising energy costs, the BOJ said in its policy statement, adding: "Accommodative financial conditions are expected to be maintained after the change in the policy interest rate, continuing to firmly support economic activity."

The decision was widely anticipated by investors and economists, having been almost fully priced into the markets.

Ahead of the meeting, policymakers had repeatedly signaled concern over upside risks to consumer prices, particularly as Japanese companies have increasingly passed on costs.

A persistently weak yen also threatens to inflate import costs. Despite record government intervention, the currency continues to hover near the critical 160 threshold against the dollar.

Many economists expect the yen to remain under pressure, driven by continued safe-haven demand for the greenback and a potential re-widening of yield differentials as global central banks tighten policy settings to combat resurgent inflation.

The BOJ, like other central banks, faces a dilemma where growing inflationary pressures can force the raising of interest rates, even as tighter monetary conditions threaten to weigh on corporate activity and cool overall growth.

Tuesday's decision shows that the BOJ is putting more weight on the danger posed by inflation than on the risk of stunting economic activity.

Still, economists say further rate hikes might prove difficult, in part because Prime Minister Sanae Takaichi is widely seen as favoring accommodative monetary conditions to spur domestic investment-a pillar of her broader economic strategy.

Write to Megumi Fujikawa at megumi.fujikawa@wsj.com

(END) Dow Jones Newswires

June 15, 2026 23:56 ET (03:56 GMT)