BOJ lifts policy rate to 1.25%, highest since 1995

CoinDesk reports that the Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest level since 1995. The move underscores Japan's continued shift toward monetary policy normalization as inflation remains elevated, bringing Japan closer to the tighter rate settings seen across major economies. The increase comes just three months after the June hike. It is the BOJ's latest step since it began policy normalization in March 2024, and it marks a faster cadence than the prior pattern of roughly one move every six months. The central bank also sounded more decisive on inflation pressures than in previous communications. Markets had largely expected the hike, limiting the element of surprise. The policy board approved the decision by a 7-to-2 vote. Dissent came from Uichiro Asada and Ayano Sato, viewed as inflation-leaning members who were appointed earlier this year by Japanese Prime Minister Sanae Takaichi. Even with internal divisions, the outcome signals the dominant policy bias remains toward further tightening. With the policy rate now at a near-30-year high, investors are reading the decision as another step away from Japan's ultra-loose era. Rate differentials and cross-border capital flows among major economies may continue to adjust. While the hike was already priced in, the pace of future increases is expected to depend on how the BOJ weighs inflation momentum against growth and broader economic pressures.