Bank of Japan hikes key interest rate to 1.25%

The Bank of Japan raised interest rates to a more than 30-year high of 1.25% on Friday and said it would lift further as it looks to counter inflation fuelled by surging energy prices and a weak yen.

The hike was expected by the markets following the recent tightening by the European Central Bank and the US Federal Reserve.

The central bank’s decision to raise its key rate by 25 basis points was carried by a 7-2 majority vote, the BOJ said on its website.

Pressure has increased on officials to lift borrowing costs as a spike in oil prices caused by the Middle East crisis, which shows little sign of ending anytime soon, is expected to keep putting upward pressure on inflation.

Central bankers are also minded to support the yen, which fell in July to its weakest level against the dollar in 40 years, prompting a historic joint intervention in foreign exchange markets by the United States and Japan.

“As for the future conduct of monetary policy, given that underlying CPI inflation has been approaching two percent and financial conditions have been accommodative, the bank will continue to raise the policy interest rate,” the BOJ said.