Bank of Japan raises interest rates to 31-year high, flags concerns over inflation

The Bank of Japan raised its policy rate by 25 basis points to 1.25%, the highest level since 1995, marking an acceleration in the central bank's tightening cycle. The decision passed 7-2, with board members Toichiro Asada and Ayano Sato voting against the increase.

The move signals the BOJ's growing concern over inflation as it continues unwinding decades of ultra-loose monetary policy. The central bank began raising rates after abandoning its negative interest rate policy, and today's hike represents the steepest borrowing cost for the yen in more than three decades.

The split vote highlights internal debate over the pace of normalization. Two dissenting votes suggest some policymakers remain cautious about tightening too aggressively amid uncertainty over domestic growth and wage dynamics.

The yen has been under pressure as global rate differentials narrowed, and today's 25-basis-point increase may offer fresh support for the currency. Japanese government bonds and cross-currency basis swaps will likely reprice in response to the new rate floor.