In brief
The Bank of Japan has nudged its policy rate to 1 % from 0.75 %, its highest level since the mid‑1990s. The move follows a surge in global energy prices that has fed into domestic inflation, while other central banks have also raised rates amid geopolitical tensions. Economists say Japan is moving out of a long period of deflation into an inflationary upcycle, though the BOJ remains cautious of higher borrowing costs for businesses and the government.
By Peter Hoskins, Business reporter – 16 June 2026
The Bank of Japan (BOJ) has increased its main interest rate to 1 % from 0.75 %, its highest level since 1995. The decision follows a surge in global energy prices that has pushed up domestic inflation, forcing the BOJ to move away from its long‑term low‑rate policy.
Japan’s rates had been near zero for two decades following aggressive cuts in the 1990s that were aimed at countering a collapse of asset prices. Since March 2024, the BOJ has started to raise rates gradually – the first hike in 17 years – and this Tuesday’s jump brings the rate to a level last seen in the same period the pandemic ended.
“After twenty years of deflation, Japan is now in an inflationary upcycle,” said economist Jesper Koll. “Emergency/crisis management monetary policy is no longer needed, and the BOJ wants to get back to a normal monetary policy,” he added.
Higher energy prices have fed into Japan’s wholesale inflation, which rose 6 % in May, the fastest pace in three years. However, the overall inflation rate – 1.4 % in April – remains below the BOJ’s 2 % target, making the trade‑off between cooling inflation and keeping borrowing costs lower a difficult one for the central bank.
The BOJ’s governor, Kazuo Ueda, was absent from this week’s meeting after being hospitalised for an infected liver cyst, although he and other policymakers have expressed a positive stance toward further rate increases. The move also aims to stabilise the yen, which has come under pressure from the U.S. dollar and the euro.
"There has been a sense that the yen is too cheap and that raising its currency will not hurt," said UC‑San Diego business professor Ulrike Schaede. "Even with the hike, Japan’s interest rate remains low compared to other big economies," she noted.
The United States and United Kingdom currently maintain rates above 3 %, with both expected to hold rates steady during this week’s policies. The BOJ’s move may signal a “slow global realignment” in monetary policy, according to Schaede.
