Japan raises interest rate to 31‑year high amid rising energy costs

Tue Jun 16 2026 06:04:36 GMT+0000 (Coordinated Universal Time)

Japan’s Bank of Japan lifts its policy rate to 1% – the highest since 1995 – as global energy prices surge and inflation pressures mount.

Japan’s central bank has increased its main policy rate to 1%, the highest level for 31 years, reacting to a sharp rise in global energy costs and mounting inflation. The move follows a decade of near‑zero rates aimed at countering deflation after the 1990s asset collapse. Economists note Japan’s inflation is now cycling up, and the BOJ seeks to move away from emergency monetary policy. Higher rates could temper inflation but also raise borrowing costs for the government and firms. The hike is part of a wider global shift and could help stabilise the yen against the dollar and euro.

Japan’s BOJ Raises Policy Rate to 1% – Highest Since 1995

Japan’s central bank lifted its policy rate to 1% from 0.75%, marking the highest level in 31 years as global energy prices surge.

The decision follows a sharp rise in wholesale prices – more than 6% in May year‑on‑year – reflecting a faster pace of inflation in the country.

Japan’s policy rate has been near zero for two decades, a legacy of the 1990s asset bubble collapse and subsequent deflation, and it has only gradually increased since March 2024.

Economist Jesper Koll said after two decades of deflation the country is now in an inflationary up‑cycle and the BOJ wants to return to normal monetary policy.

The BOJ faces a delicate balance: higher rates can ease inflation but also make borrowing costlier for the government and businesses, potentially slowing growth.

Bank governor Kazuo Ueda missed this week’s meeting due to a hospital stay, yet he has expressed an increasingly positive stance on tightening policy.

He stated that if price risks outweigh economic activity risks, the policy rate should be reviewed aggressively.

Prime Minister Sanae Takaichi, who supports boosting domestic spending, has so far not criticised the BOJ’s rate hike, though inflation remains a concern.

The increase also aims to stabilise the yen, which has weakened against major currencies like the US dollar and euro.

Compared with other large economies, Japan’s rate remains low; the US and UK sit above 3% and are expected to hold rates steady at this meeting.

The move could signal a slow realignment of global monetary policy as inflation returns.