TOKYO, June 16 (Xinhua) -- The Bank of Japan (BOJ) decided Tuesday to raise its benchmark interest rate to 1.0 percent from 0.75 percent following its two-day board meeting, the highest in 31 years, as the central bank seeks to stay ahead of inflation and support the weak yen.
BOJ Governor Kazuo Ueda, who has been hospitalized for treatment of a hepatic cyst infection, was absent from the meeting, at which the remaining board members decided to take the short-term interest rate to levels unseen since 1995.
The decision marks the BOJ's first rate hike since December 2025 and its fifth rate hike since it ended its negative interest rate policy in March 2024.
In its statement, the BOJ warned that there is a risk of underlying inflation "deviating upward to a level above the price stability target of 2 percent" as the rise in crude oil prices leads companies to hike prices in business-to-business transactions "at a relatively fast pace," which could "spread to an increase in consumer prices across a wide range of items."
The bank will continue to raise the policy rate in response to developments in economic activity and prices as well as financial conditions, the statement said.
At the Tuesday meeting, the BOJ also decided to slow the pace of reductions in Japanese government bond purchases starting April 2027, while maintaining the current pace of reducing them by about 200 billion yen every quarter through March 2027, in an effort to prioritize market stability when yields on long-term interest rates have been rising rapidly.
In August 2024, the bank began reducing its monthly government bond purchases to allow long-term rates to be guided more by the market, as part of its efforts to normalize monetary policy after it kept yields for the bonds between zero percent and 1 percent for years through massive bond purchases.
At the BOJ's post-meeting news conference, Deputy Governor Shinichi Uchida said that despite the U.S.-Iran agreement to end the war, there is uncertainty surrounding the economy, citing concerns, including the recovery of supply chains.
Uchida said the central bank will continue to raise the policy rate to stabilize inflation at around its 2 percent target level, noting the danger of rises in crude oil prices spilling over to prices of a wide range of products and pushing inflation up. ■