Bank of Japan hikes rates to highest since 1995 as yen languishes at historic lows

The Bank of Japan raised its policy rate to 1.0% on Tuesday, the highest level since 1995 and in line with economist expectations. The move marks the central bank's first hike since December, when it lifted rates to 0.75%—previously the highest in over three decades.

The 25-basis-point increase extends the BOJ's departure from its long-standing ultra-loose monetary policy. Despite the tightening, the yen remains under pressure at historic lows against major currencies, suggesting markets view the 1.0% rate as insufficient to materially support the currency or close the yield gap with other developed economies.

The BOJ's gradual normalization contrasts sharply with policy stances at the Federal Reserve and European Central Bank, where rates remain significantly higher. This divergence has kept the yen vulnerable, with traders testing whether Japanese authorities will intervene or accelerate the pace of future hikes.