Bank of Japan raises interest rates to highest in 30 years since 1995

As reported by Japan Today, the Bank of Japan hiked interest rates to a 30-year high of 0.75% for the first time.

BOJ informed that the economy had shown signs of improvement and the unanimous vote to lift the main borrowing rate from 0.5 percent came hours after official data showed the country's core inflation rate held steady in November 2025 but still well above policymakers' target.

"Japan's economy has recovered moderately," bank officials wrote in a report explaining the decision. "While uncertainties remain regarding the U.S. economy and the impact of trade policy in each jurisdiction, these uncertainties have declined."

As long as economic activity and prices continued to improve, they added, the bank would "continue to raise the policy interest rate and adjust the degree of monetary accommodation," said BOJ officials.

According to Reuters, the Bank of Japan raised benchmark rates by 25 basis points to 0.75%, their highest level since 1995, and in line with expectations of economists' poll.

The BOJ said that real interest rates are expected to remain "supposedly negative," adding that accommodative financial conditions will continue to firmly support economic activity.

Following the decision, the yield on 10-year Japanese government bonds rose about 5 basis points to 2.019%, while the 20-year JGB yield climbed 3 basis points to 2.975%, both reaching their highest since 1999.

The yen weakened from 0.25% to 155.92 against the dollar, and the benchmark Nikkei 225 stock index gained 1.28%.

While reflecting upon the situation and abandoning the world’s only negative interest rate regime that had been in place since 2016, Japan embarked on policy normalization last year.

Since then, the BOJ has consistently maintained its stance on gradually lifting rates, stating that its goal was to see a “virtuous cycle” of rising wages and prices.

Inflation has run above the BOJ's 2% target for 44 straight months, with data released earlier in the day showing consumer price growth at 2.9% in November 2025.

According to Labor Ministry data, high inflation has pressured real wages that have been declining for 10 months in a row.

Japan's central bank said in its statement that while weakness has been seen in the economy, corporate profits are likely to remain high, and the firms are expected to continue raising wages in 2026.

“It is highly likely that the mechanism in which both wages and prices rise moderately will be maintained,” the bank said, adding that the possibility of underlying inflation reaching its 2% target was rising.

Additionally, Asia’s second-largest economy already boasts of the world’s highest debt-to-GDP ratio, standing at almost 230%, according to data from the International Monetary Fund.