The Bank of Japan raised its benchmark interest rate by 0.25 percentage points to 1.25% on Friday, the highest level since 1995. The policy board approved the move in a 7-2 vote, just three months after its June hike, the shortest gap between increases since it ended its large-scale easing program in March 2024.
Governor Kazuo Ueda cited risks including the war in Iran, higher oil prices, strong AI-driven demand and a weak yen, which fell to nearly 164 per dollar in July and prompted 15.4 trillion yen in government purchases. Two board members appointed by Prime Minister Sanae Takaichi dissented, up from one in June.
Ueda said he intends to keep raising rates but at a slower pace, warning that "it is important to avoid raising rates too abruptly," though he did not rule out a 50-basis-point move. Bloomberg reported that markets found the message not hawkish enough, and the yen stayed near 158 per dollar. Higher rates could also raise government debt-servicing costs and complicate Takaichi's fiscal expansion plans.