The Bank of Japan has raised interest rates to a 31-year high, accelerating monetary policy normalisation amid pressure from Washington and joining a global fight against inflation. In a 7-2 vote, the Bo J raised its target rate by 0.25 percentage point to around 1.25 per cent.

The move, widely expected, followed similar increases by the European Central Bank and the US Federal Reserve. It came as rising prices and a weak yen weighed on Japanese consumers, while Middle East conflict and AI boom consequences drove inflation. The yen fell to ¥157 per dollar after the announcement, but the Nikkei 225 rose 1.9 per cent.

The accelerated tightening followed Japanese authorities’ $96bn currency market intervention in July and August and calls from Treasury secretary Scott Bessent to raise rates faster. Dissenters were both appointed by Prime Minister Sanae Takaichi, who favours reflationary spending. Nomura said back-to-back hikes were unlikely.

Analysts said the statement’s hawkish tone left open at least one more increase by December. Japan’s 10-year bond yield remained near 3 per cent, its highest in three decades.