Japan’s central bank raised its key interest rate to 1 percent on Tuesday, bringing borrowing costs to the highest level seen in the country since 1995. The Bank of Japan’s policy board voted to lift the rate from 0.75 percent at its two-day meeting ending June 16, 2026.

The decision had been widely anticipated. More than 94 percent of economists surveyed by Reuters before the meeting predicted the hike, and market odds on prediction platforms had placed the probability above 80 percent for weeks. Japan’s wholesale inflation hit 6.3 percent in May, the highest reading since March 2023, driven in part by elevated global oil prices tied to the US-Iran conflict.

A weak yen has compounded import costs for Japanese households and businesses. The currency has lost ground steadily through 2025 and into 2026, prompting concern among policymakers about its drag on purchasing power. Officials flagged the yen’s depreciation as a key factor pushing the case for tighter policy.

The BOJ’s last rate increase before this was in December 2025, when it moved from 0.5 to 0.75 percent. That step came after a long period of ultra-loose monetary policy that kept rates near zero or below for decades. A rate of 1 percent would have been unthinkable in Japan for most of the period since the 2008 financial crisis.

Markets responded cautiously ahead of the announcement, with the yen gaining slightly against the dollar in Asian trading on Tuesday. Japanese government bond yields edged higher as investors priced in the expected move.

BOJ officials signalled at recent public appearances that additional hikes remain possible later in 2026 if inflation holds above target and economic conditions support further tightening. Real interest rates in Japan remain negative, meaning price growth still outpaces the nominal policy rate even after Tuesday’s increase.

The hike lands on the same day the US Federal Reserve begins its own two-day meeting in Washington, where policymakers are expected to hold rates steady at 3.5 to 3.75 percent. The diverging paths of the world’s two largest central banks could reshape currency flows in the weeks ahead.

Japan’s economy grew at a modest pace in the first quarter of 2026, with consumer spending softening as higher prices weighed on households. The BOJ is betting that wage growth, which has picked up for three consecutive years, will sustain domestic demand even as rates rise. Governor Kazuo Ueda is expected to address reporters Tuesday afternoon after the policy decision is released by the board.

For further context, the Bank of Japan’s official site publishes the full policy statement and rate outlook each meeting cycle.