The Bank of Japan has raised its policy interest rate to 1.25 percent, the highest level in 31 years.

The increase was widely anticipated and was approved by a 7–2 vote following a two-day policy meeting.

Board members Toichiro Asada and Ayano Sato opposed the decision, highlighting differences over the pace of monetary tightening.

The central bank is trying to prevent inflation from remaining above its two-percent target while moving away from decades of exceptionally loose policy.

Higher interest rates could strengthen the yen and moderate price pressures, but they also raise borrowing costs for households, companies and the government.

Investors are monitoring wages and domestic demand to determine whether Japan’s economy can absorb further increases without a sharp slowdown.

Governor Kazuo Ueda’s guidance will be closely examined for indications about the timing and conditions of any additional policy moves.

Source: Reuters

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