Japan lifts interest rates to highest level in more than 30 years

The decision was approved by a 7-1 vote at the central bank's latest Monetary Policy Meeting and will take effect on June 17. The BOJ also increased the interest rate on excess reserves held by financial institutions at the central bank to 1% and raised its basic loan rate to 1.25%.

The move comes as Japanese policymakers grow increasingly concerned that rising energy costs and higher inflation expectations could push consumer prices above the central bank's 2% target. While headline inflation has recently eased to below 2%, partly due to government measures aimed at reducing household energy costs, the BOJ said higher crude oil prices are increasingly being passed through supply chains and could lead to broader price increases.

The central bank noted that Japan's economy continues to recover moderately despite some weakness linked to developments in the Middle East. Higher oil prices have weighed on economic activity, but strong corporate profits, improving employment conditions and government support measures have helped sustain growth.

The BOJ also said risks of a significant economic slowdown have diminished as Japan has secured alternative sources of raw materials that were heavily dependent on the Middle East.

Looking ahead, the BOJ signaled that further rate hikes remain possible. The bank said it would continue adjusting monetary policy as underlying inflation moves closer to its 2% target, while carefully monitoring economic conditions, financial markets and the impact of geopolitical developments in the Middle East.

The BOJ also projects that inflation will rise above 2% in the coming months as energy and goods prices increase, before gradually returning toward the target level. Underlying inflation is expected to reach a level consistent with the bank's price stability goal between the second half of fiscal 2026 and fiscal 2027.

Earlier, Qazinform News Agency reported that Japan and the UK agreed to boost energy security.