Bank of Japan raises interest rate to 1.25%, the highest since 1995

The Bank of Japan, the central bank of the second-largest Asian economy, has announced that it has raised the overnight call rate or the benchmark interest rate, by 25 basis points. This pushes the interest rate to 1.25% from the previous 1.00%. The decision from the BoJ has taken the lending rate to its highest mark in over 30 years, since 1995. The Bank of Japan board voted in a 7-2 majority to raise rates. As per reports, the central bank said underlying inflation in Japan is nearing the 2% threshold, and financial conditions are accommodative.It, however, also said there is a risk that underlying inflation could overshoot its 2% target.Furthermore, the central bank also said that it must be vigilant to risks, particularly West Asia developments, AI demand, FX volatility and their impact on the economy and prices.BOJ Governor Kazuo Ueda's is slated to give his statement later in the day and will be keenly watched for further clues on the timing and pace of further hikesThis key move from BoJ comes a day after Japan's Prime Minister Sanae Takaichi reshuffled her cabinet, vowing to focus on policies to promote growthThe Japanese Yen has weakened against the US Dollar, and now stands at 156.160 against the world's reserve currency.The Japanese currency experienced weakness following economic data disclosed on Friday, which demonstrated that Japanese inflation in August fell marginally below anticipated levels, Reuters reported.

According to LSEG data, swap market pricing reflects an 83% probability that the Bank of Japan will implement a rate increase, with subsequent quarterly rate adjustments anticipated to follow.Meanwhile, Brent crude has eased further and is trading below the $105 mark.Also Read: Chinese Yuan rises to strongest level since 2022 after PBOC fixing