Bank of Japan Lifts Rate to 1 Percent, Its Highest Since 1995

The Bank of Japan raised its short-term policy rate by 25 basis points to 1 percent on Monday, the highest level since 1995 and a decisive step away from the negative and near-zero rates that defined Japanese monetary policy for a generation. The board approved the move in a 7-to-1 vote, with one member favoring a hold.

The central bank said inflation and the weak yen had made it difficult to wait any longer. Energy costs tied to the conflict in the Middle East have fed through to domestic prices, and wholesale inflation reached 6.3 percent in May, a multi-year high. Israeli financial outlet Globes noted the decision alongside a strong session on United States equity markets, reporting the Japanese rate at its highest since 1995.

Read through a sound-money lens, the more telling number is the gap between the policy rate and prices. Even at 1 percent, the rate sits far below wholesale inflation, which means real borrowing costs in Japan remain deeply negative. Decades of yield suppression and large-scale bond buying encouraged borrowing and investment that cheap credit alone could sustain, and unwinding that position slowly leaves those distortions largely intact.

The decision also matters beyond Japan. The yen has been a low-cost funding currency for global investors, and a firmer Japanese rate path can pull capital home and tighten financial conditions elsewhere.