The Bank of Japan (BoJ) has raised its key policy interest rate by 0.25 percentage points to 0.75%, marking the highest level in 30 years as of December 19, 2025. The decision — made unanimously by the BoJ’s policy board — reflects a continued shift away from decades of near-zero interest rate policy amid persistent inflation and improving economic indicators.
Historic Rate Hike and Policy Change.
In its latest monetary policy meeting, the Bank of Japan increased its benchmark interest rate from 0.50% to 0.75%, a level not seen since September 1995. The unanimous decision, announced by Governor Kazuo Ueda, underscores the central bank’s commitment to normalising monetary policy after years of ultra-loose conditions aimed at combating deflation.
Governor Ueda, who has led the BoJ since April 2023, has overseen several tightening steps as inflation in Japan has remained above the bank’s 2% target for an extended period — a significant departure from decades of sub-target price growth.
Several key economic trends influenced the policy shift:
1) Persistent Inflation: Core consumer prices in Japan have remained above the central bank’s inflation goal for months, driven in part by higher import costs, food prices, and wage pressures.
2) Improved Business Sentiment: Surveys of Japanese manufacturers and firms show rising confidence, supporting the case for tighter monetary conditions.
3) Global Monetary Context: While other major central banks have eased or kept rates steady amid global economic uncertainty, the BoJ’s stance reflects a distinct inflation and economic dynamic in Japan.
The policy rate increase comes at a time when Japan’s economy has faced mixed signals — including weak overall growth alongside pockets of wage and price strength — prompting policymakers to balance inflation control with economic resilience.
