The Quarter-Point Hike From 0.75% Marks A Milestone In Japan’s Decade-Long Shift Away From Rock-Bottom Borrowing Costs, Continuing A Gradual Policy Normalisation That Began After Years Of Near-Zero And Even Negative Interest Rates As Recently As January 2016
According to Al Jazeera and ABC News, citing Kyodo News via AP, the Bank of Japan raised its benchmark interest rate to 1% on Tuesday, a milestone in the country’s shift away from decades of rock-bottom borrowing costs. The central bank’s policy board voted 7-1 to lift the uncollateralised overnight rate by a quarter of a percentage point from 0.75%, putting it at its highest level since 1995.
The BOJ cited challenges stemming from a weak Japanese yen and higher prices, with Al Jazeera reporting the hike was driven specifically by price pressures stemming from the United States-Israel war on Iran.
The central bank has been trying to normalise monetary policy after decades of keeping rates near or below zero, having adopted ultralow rates originally to encourage borrowing and spending and pull the economy out of prolonged deflation. As recently as January 2016, Japan’s benchmark rate stood at negative 0.10%.
At its March 2026 meeting, the BOJ had held rates at 0.75% in an 8-1 vote, with board member Hajime Takata dissenting in favour of an immediate hike to 1%, citing escalating Middle East tensions clouding the economic outlook.
To check out our previous coverage on global central banks and the economic fallout of the Iran war, read our articles here.
