Bank of Japan raises rates to 1%, highest level since 1995

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Japan's central bank lifted its benchmark interest rate to 1 percent on Tuesday, the highest level in nearly three decades. The move marks a historic pivot for an economy that has relied on near-zero rates since the 1990s. Officials cited growing confidence that inflation has stabilized enough to warrant tighter borrowing conditions, with the economy now closer to the Bank of Japan's 2 percent inflation target after decades of deflation. The rate increase, up from 0.5 percent, continues a gradual monetary normalization that began in 2024. Policymakers have signaled further adjustments may come, though they remain cautious about the risks: higher rates could pressure households and businesses already contending with rising costs, and the timing arrives as global growth shows signs of slowing. The shift reflects a fundamental recalibration of Japan's economic strategy, though rates remain far below those in the U.S. And Europe.